Learn how to buy gold as an investment in your RRSP

As a rule, we recommend that you hold investments like gold separately and not within your Registered Retirement Saving Plan (RRSP).

That’s because, if you hold speculative investments like gold inside your RRSP and they drop in price, you not only lose money, but you lose the opportunity for tax-free compounding of the money within your RRSP.

Always remember that the price of gold feeds on economic uncertainty. We encourage you to also read this frequently asked questions article about investing in gold in your RRSP too.

Let’s review some of our gold buying basics:

Buying gold through stocks — not bullion or coins

We recommend that you invest in gold through gold-mining stocks, and avoid buying gold bullion, gold coins (unless you collect them as a hobby) or certificates representing an interest in bullion.

That’s because these investments have hidden costs that dramatically cut their value over time. For instance, gold bullion and coins require insurance and storage, which will be a continual drain on your cash. Moreover, if you want to hold them in your RRSP, you’ll need to find a third-party custodian to verify the amount of gold claimed. The custodian will then report the amount to the Canada Revenue Agency on your behalf — again, at a cost.

Gold-mining stocks, on the other hand, let you profit from increases in the price of gold without these onerous costs. And unlike bullion and coins, dividend-paying gold stocks have the potential to generate income.

Here’s more on our outlook for gold stocks

Take a conservative approach to gold investing

Conservative investors should be very careful when choosing gold investments. Gold tends to have a particularly strong grip on some investors’ imaginations, so they tend to bid up gold-stock prices out of proportion to how much profit these companies can make from gold mining.

Buying gold as an investment: seven guidelines we use to pick gold-mining stocks

1. To profit in gold stocks, look for well-financed companies with no immediate need to sell shares at low prices, since that would dilute existing investors’ interests.
2. High-quality gold stocks should have strong balance sheets with low debt. Junior mines should have a major partner who can finance a mine to production.
3. Another key ingredient is an experienced management team with a proven ability to develop and finance a mine.
4. We think you should avoid stocks that trade “over the counter,” where such things as regulatory reporting are lax.
5. We also recommend avoiding stocks that are trading at unsustainably high prices as a result of broker hype or investor mania.
6. Compare the market caps of the stocks with the estimated value of their assets or future earnings streams. Some need to quickly find a mineral deposit and begin production to justify the current share price and avoid collapse.
7. Above all, you should automatically rule out investing in companies that promote themselves too aggressively, or do so misleadingly. Success is more likely if the managers focus on finding or developing a mine, rather than touting their stock.

Buying gold as an investment: holding bullion in your RRSP directly

As we mentioned, we don’t recommend holding gold bullion. However it is possible if you’re willing to jump through a few hoops. In the 2005 Canadian federal budget, investment-grade gold or silver bullion bars became eligible to be held in an RRSP. Bullion bars are eligible for RRSP gold investing if 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.

You can also hold gold and silver coins as an RRSP investment. Eligible 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.

However, to hold 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.

With the large number of gold stocks available it is very easy to buy gold as an investment through your RRSP. 

Do you have other questions about buying gold as an investment through your RRSP? Let us know in the comments.