Topic: Mining Stocks

Is gold bullion a good investment?


A gold bullion investment may sound exciting but the truth is, gold bullion has a lot of hidden costs.

What do think of when you hear the term gold bullion? Perhaps you envision stacks of gold bullion piled high in a vault. If you’re here, you’re most likely looking for information about gold bullion investment opportunities. At TSI Network, we think investing directly in gold bullion is a bad idea. We think there are better ways to invest in gold.

Four tips on how to invest in gold bullion:

Tip #1: Gold bullion investments have hidden costs that dramatically eat into your earnings potential over time. Gold bullion and gold coins require insurance and special storage plans which will incur costs for as long as you keep them.

Tip #2: We recommend that you invest in gold through gold-mining stocks. Unlike bullion, these stocks at least have the potential to generate income. High-quality gold stocks can pay off nicely by establishing new mines and raising their production, even if gold goes sideways for a lengthy period. But keep in mind that no matter how appealing they look, you should limit gold stocks to a modest part of your portfolio.

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Tip #3: If you want to own gold bullion, there are easy and low cost ways to do it. Look into investments like SPDR Gold Shares (symbol GLD on Nasdaq). You can buy and sell SPDR Gold Shares through your broker. SPDR Gold Shares goal is to perform at the same price of gold bullion. Its only assets are gold bullion, and, from time to time, cash.

Tip #4: You can hold gold in your RRSP. 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 a registered retirement savings plan (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.

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.

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.

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 (plus the $19.95 commission) and pay only $0.10 a month, or $1.20 a year, in storage fees.

Is gold bullion a good investment? In our opinion, no. There are just too many ways that gold bullion investments eat away at your earnings.

What is an RRSP?

RRSPs (Registered Retirement Savings Plans) are a great way for investors to cut their tax bills and make more money from their retirement investing.

RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free. (Note that you can currently contribute up to 18% of your earned income from the previous year. March 1 is the last day you can contribute to an RRSP and deduct your contribution from your previous year’s income.)

When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income.

If you want to pay less tax on dividends while you’re still working, investing in an RRSP is the way to go.

Have you had a positive or negative experience investing gold bullion? Let us know in the comments.


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