Gold investing and your RRSP

There’s no limit to the range of investment questions that members of Pat McKeough’s Inner Circle get to ask me and my investment associates.

Most members ask us about specific investments (such as stocks, exchange-traded funds and income trusts), that they are thinking of buying or selling. However, members ask us a wide range of other types of investment questions, as well.

For example, one Inner Circle member recently asked us an interesting gold investing question: He wanted to know if there is way to hold gold coins and bars in an RRSP. To give you a sense of how the Inner Circle service works, I’d like to share this member’s gold investing question. I hope you enjoy and profit from it.

Q: Hi Pat, Is there a way to buy physical gold or silver (i.e. coins, bars, etc.) within an RRSP? Thanks.

A: If you want to buy gold, we recommend staying away from buying gold bullion, coins (unless you collect them as a hobby) or certificates representing an interest in bullion. That’s because gold investing in bullion does not generate income. Instead, bullion and coins come with a continuing cash drain for management, insurance, storage and so on. You either pay these costs directly or through a premium built into the price of, say, a futures contract.

That’s why we recommend that you limit your gold investing to gold-mining stocks. Unlike bullion, gold-mining stocks at least have the potential to generate income.

However, if you do want to hold physical gold or silver in an RRSP, here’s how to do it:

The 2005 Canadian federal budget made investment-grade gold and silver coins, as well as gold or silver bullion bars, eligible to be held in an RRSP.

To be considered investment grade, gold coins must be at least 99.5% pure, and silver coins must be at least 99.9% pure. As well, only legal-tender coins produced by the Royal Canadian Mint are RRSP-eligible.

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Bullion bars are also eligible for RRSP gold investing, as long as they are produced by a metal refinery that is accredited by the London Bullion Market Association. Accredited metal refineries include the Royal Canadian Mint and Johnson Matthey. You can also buy bullion bars from the Bank of Nova Scotia.

However, to hold the coins or bullion bars in your RRSP you need to find a third-party custodian of your coins or bars who will verify that you indeed hold the amount of bullion claimed, and report that to the Canada Revenue Agency on your behalf.

Gold investing: A practical way to hold gold bars and coins in your RRSP

Questrade, a Canadian online discount broker, introduced its “Gold RSP” in January 2006. This investment meets all of the Canada Revenue Agency’s specifications, and makes it practical to hold coins or bullion bars in your RRSP.

To access the Questrade Gold RSP, you have to open a Questrade account. You can open an account with as little as $1,000. Gold purchases or sales cost $19.95 each. Kitco Metals buys the gold from the Royal Canadian Mint, and the gold is stored at the Mint, as the Canada Revenue Agency requires. Bid and ask prices are quoted on the Questrade web site, so you can buy and sell gold bars or coins if you want to bet on gold price fluctuations.

Questrade, on behalf of the Royal Canadian Mint, charges storage fees of $0.10 per ounce of gold per month. There is no minimum number of ounces you need to hold, and no minimum storage charge. So, for example, you could buy just one ounce of gold at the current market price of around $1,189 U.S. (plus the $19.95 commission) and pay only $0.10 a month, or $1.20 a year, in storage fees.

If you have investment-related questions, or if you’d like to ask us about stocks or other types of investments you’re considering buying (or selling), you should join our Inner Circle service. Click here to learn more.