Toronto Star ePaper

■ In Your Corner


Shoppers are scooping up Costco’s gold bars. But does it really pay to invest in gold?

On top of home decor and bulksized bags of candy, Canadians are now rushing to Costco to add gold bars to their (online) shopping carts.

Last month, Costco Canada began selling one-ounce, 24-karat gold bars — priced at $2,679.99 a piece — online. According to Costco chief financial officer Richard Galanti, the bullions sell out within hours whenever they’re added to the retailer’s website. It’s one of the reasons shoppers are only permitted to buy two at a time.

But financial experts warn that unless you’re in a doomsday scenario, other investments might offer better returns, as predicting the metal’s returns can be tricky.

Gold has a reputation for acting as an inflation hedge, where investors seek out safer assets during times of economic uncertainty. That uptick in demand can drive up its price. But as Dan Hallett, principal at Toronto-based HighView Financial Group, notes, the price of the yellow metal has “been completely freefloating.”

“If you look at a bunch of different historical chunks of time, you’ll find that sometimes it does hedge inflation and sometimes it doesn’t, so it’s not that reliable,” he says.

Hallett explains that, unlike stocks or equities where you can predict an average return over time, there aren’t fundamentals that underpin the value of gold. With ETFs (exchange-traded funds) or the S&P 500, price-earnings ratios can offer a ballpark estimate. For instance, the yield to maturity — or estimated rate of return — on a 10-year Government of Canada bond averages around four per cent. “It’s not precise, but at least you have an idea,” Hallett says, adding that, in contrast, the price of gold fluctuates based on characteristics like macroeconomic factors and investor sentiment.

Hallett notes that fear of missing out might play a role in investors’ desire to buy gold, especially when prices for the metal are high. In such cases, he warns clients against jumping on the bandwagon and making investment decisions based on emotion.

Despite high consumer demand for Costco’s gold bars, Jason Heath, managing director at Objective Financial Partners, says gold has lost its lustre over the past 20 years, especially as an inflation hedge, as people have shifted their attention to other investments such as real estate.

For Canadians who still want gold in their portfolios, Heath recommends investing in the metal through a fund.

Just be warned that those funds tend to have management fees and various fees associated with owning the gold, Heath adds.

“In general, over the long run, stocks have provided a higher rate of return than gold and a higher rate of return than bonds, albeit with more volatility,” Heath says. In other words, unless we’re on the brink of an apocalypse or in a doomsday situation, Canadians are better off sticking to bonds and stocks.

‘‘ In general, over the long run, stocks have provided a higher rate of return than gold and a higher rate of return than bonds.






Toronto Star Newspapers Limited