5 Top Canadian Gold ETFs for December 2022 and Beyond

Posted on November 16, 2022 by Mathieu Litalien

With the advent of Canadian exchange-traded funds (ETFs), passive investing in Canada has become simple. These days you don't need to learn how to buy individual stocks. You can instead deploy a more passive approach with ETFs.

ETFs are also an excellent way to gain exposure to particular industries without having to pick individual stocks.

A piece of investment advice we often give (an investment strategy use at your own discretion of course) is that every portfolio should have some sort of exposure to gold. Gold has long been considered a defensive investment and helps insulate your portfolio against a variety of market conditions, potential bear markets, or market volatility.

There are some investors who buy bonds, or even Canadian bond ETFs for stability, which isn't a bad decision either. But in a rocky market in terms of interest rates, bonds will be more volatile.

With that being said, stocks that rely on a commodity, like oil, gold, or even other precious metals like cobalt, pose more risk. And our stock exchange here in Canada, the TSX, is loaded with these types of stocks.

The economic downfall from COVID-19 has presented investors with a huge opportunity with gold stocks

Prior to the COVID-19 pandemic, gold had fallen out of favor, trading in a 5+ year bear market with prices hovering anywhere from $1000-1200 USD an ounce. Now? The pandemic has caused a surge in the popularity of gold, and prices now sit in the $1700-1900 USD range. This is ultimately a tailwind for gold producers.

So where should one invest? Investing in individual gold producers can be difficult, risky, and not suggested for those with a low risk tolerance. Yet purchasing physical gold has been somewhat underwhelming in terms of returns for some time now. There are a plethora of small, mid, and large-sized gold stocks and it’s not easy picking the winners.

As we’ve seen in the past, investors who buy the wrong gold producer or explorer can lead to big losses. Gold companies that are set up for long-term success are a rarity, and most investors end up losing money when they get into precious metals or the companies that mine them.

Investing in a Canadian gold ETF is a great way to increase your exposure to the precious metal while minimizing your risk.

Ultimately, the performance of these ETFs will be dependent on the price of gold, but for investors looking for lower risk, an ETF inherently won’t be as volatile as buying individual stocks on the stock market.

Keep in mind, however, that with any ETF, you should be looking for a blend of low cost and high returns. Mediocre ETFs with high expense fees can eat into returns over the long term and cause you to significantly underperform the market.

So what is the best gold etf in Canada moving forward in 2022?

  • iShares Gold Bullion ETF (TSE:CGL)
  • iShares S&P Global Gold Index ETF (TSE:XGD)
  • BMO Junior Gold Index ETF (TSX:ZJG)
  • Horizons Gold Yield ETF (TSX:HGY)

iShares Gold Bullion ETF (CAD-Hedged) (TSX:CGL)

iShares Gold Bullion ETF (Non-Hedged) (TSX:CGL.C)

Interested in physical gold?

iShares Gold Bullion ETF is the closest thing investors will get to owning physical gold without actually having to buy, hold, and store it. There are no gold mining companies in this ETF. There are two funds – the one that is hedged to the Canadian dollar (TSX:CGL) and the non-hedged version (TSX:CGL.C).

The objective of the fund is to replicate the performance of the price of gold bullion for investors, less expenses and fees.

As of August 2022, this Canadian ETF has $977M in assets and a share price of $14.27. The funds MER expenses are 0.56% which is equal to $5.60 for every $1,000 invested.

Thus far in 2022, the price of gold bullion lost 3.05% whereas the iShares non-hedged ETF has lost only 1.97% and the hedged version has lost 4.7%. So, there is some varying performances here. Interestingly, when you look further out the performance is even less stable.

The non-hedged version has outperformed the gold bullion in a big way, while the hedged version has underperformed slightly. This is due in large part to the strength of the USD in comparison to the CAD. However, as we've witnessed moving forward, this is changing as the CAD is gaining significant amounts on the USD.

Overall, if you're interested in physical gold but don't want to go through the hassle, both these gold ETFs provide an excellent alternative for long-term investments.

iShares S&P/TSX Global Gold Index ETF (TSX:XGD)

The S&P/TSX Global Gold Index (TSX:XGD) is the most popular in terms of tracking the performance of the entire gold industry.

It includes producers of gold bullion and gold-related products and streaming companies. As of August 2022 there were 51 Index constituents.

The iShare’s XGD product aims to replicate the S&P/TSX Global Gold Index. It has a relatively high-risk profile and has MER fees of 0.61%. This equals $6.10 for every $1,000 invested.

It is one of the most liquid gold ETFs in Canada with $922 million in assets and a current price of $15.10 per unit. The fund also yields a small distribution of 1.7% quarterly.

Since this is an ETF focused on producers, it has a much higher risk profile than gold bullion itself. Investors can expect this ETF to outperform in a gold bull market much as it did in 2020, and underperform in the bear market we're seeing right now.

The top 10 holdings account for 75% of assets and the three largest positions include Newmont Corp (@18%)(TSX:NEM), Barrick Gold (@15%)(TSX:ABX) and Franco-Nevada Corp (@13%)(TSX:FNV).

This is the best ETF to own if you want high exposure to the major producers and streamers in the industry.

BMO Junior Gold Index ETF (TSX:ZJG)

In the mood for a little more risk? Consider the BMO Junior Gold Index ETF (TSX:ZJG).

The fund is focused on the smaller industry players and seeks to replicate, net of expenses, the Dow Jones North American Select Junior Gold Index. The Index contains junior gold exploration, development and mining stocks.

The fund has an MER ratio of 0.61% and as of August 2022 has $59 million in assets and a share price of $54. In total, the fund has 42 holdings, 80%+ of which are Canadian-listed junior minors.

At 61%, the top 10 holdings are less concentrated than some of the other funds on this list. 

As we witnessed with the soaring price of gold in 2020 this gold ETF dominated because of its junior miner exposure. However, if you fast forward to August 2022, it has suffered significantly. It's down 17% on the year, and over the last half decade returns have been flat.

This is a fund you'll likely need to actively trade, buying the troughs and selling the peaks, in order to outperform. So keep in mind, although this has the most upside potential, without question, this is the riskiest fund on the list.

Horizons Gold Yield ETF (TSX:HGY)

The Horizons Gold Yield ETF (TSX:HGY) employs a covered call strategy to provide investors with exposure to gold hedged to the CAD and tax-efficient distributions.

As of writing, Horizons’ currently yields an attractive 6.49%, has $75M million in assets and currently trades for around $4.72 per share.

Unfortunately, this ETFs MER fee of 0.98%, which is equal to $9.80 for every $1,000 invested, is quite expensive. Of all those on this list, HGY is the one that tracks the price of gold the closest – if you include the distribution. If you strip out the yield, it has actually underperformed.

The fund is a unique product in that it holds gold ETFs as opposed to the physical metal or companies in the industry. SPDR Gold Shares (GLD) is the primary holding, making up over 96% of assets.

This fund is not for everyone. If all you are looking to do is increase your exposure to gold, then the other options on this list may be better options. This is especially true because of the high MER fees.

On the other hand, it is a unique product in that it allows you to increase exposure to gold and generate income.

 HGY invests in funds that hold physical gold as opposed to companies that produce physical gold.

As we’ve seen, the ETFs whose primary holdings are gold producers tend to be more volatile. These ETFs tend to outperform in a gold bull market and can significantly underperform when gold struggles.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post.

Mathieu Litalien

About the author

Mathieu is an individual investor and has been investing part-time for the better part of the past 20 years. He is primarily interested in fundamental analysis, focusing on the long-term and his portfolio is composed primarily of dividend-paying equities. Mathieu has a moderate risk profile and also looks for growth and value. His passion for finance and the markets have led him to his MBA and writing for Seeking Alpha and Stocktrades. Mathieu also focuses primarily on stock research and content production for Stocktrades.ca Premium and the Stocktrades blog.