You might be thinking about adding gold to your portfolio since gold rices are at 5 year lows.

In addition to gold prices being well of their 2011 highs, gold can provide diversification benefits to a portfolio of stocks and bonds. When priced in Canadian dollars, gold has often been negatively correlated to Canadian stocks and bonds.

While the correlations have been increasing, they still remain low. So how can you easily add gold to your portfolio to take advantage of lower prices and diversification benefits?

You could buy gold coins or bars and store them in a safety deposit box or with a reputable gold company, many investors do. Many brokerages now allow you to hold gold in your RRSP. Unfortunately, they charge fees to trade gold which are higher than to trade stocks or ETFs, as well as a monthly fee to store it. An easier way to invest in gold is to buy an ETF that owns gold. If you want a more leveraged exposure to gold, you can buy an ETF that owns shares of gold mining companies.

ETFs That Own Gold

All of the following ETFs own bars of gold which are held in vaults owned by major banks. Each of these ETFs provides a list of the gold bars they own, including where they came from and where they are stored.

iShares Gold Bullion ETF (CGL) and (CGL.C, unhedged)

This ETF owns gold bars, which are held in Scotiabank’s vaults in Toronto and New York, and can also own gold certificates. Since gold is typically priced in USD, CGL hedges the currency exposure back to CAD, while CGL.C does not. While this is not an actively managed ETF, there is still a management fee

CGL:

CGL.C:

iShares Gold Trust (IGT)

IGT owns gold bars which are held in JP Morgan’s vaults in New York and London, and at Scotiabank’s vault in Toronto. This ETF is primarily traded on the NYSE under the symbol IAU, but is also listed on the TSX under IGT. In New York it trades in USD, while in Toronto it trades in CAD.

SPDR Gold Shares (GLD)

This US-based ETF currently owns 680 tonnes of gold bars which are stored in HSBC’s vault in London. It is the largest gold ETF and is one of the least expensive options, not considering any foreign currency conversion costs.

Horizons Gold Yield ETF (HGY)

This ETF provides exposure to gold bullion through GLD, hedged to Canadian dollars. The ETF also uses a covered call strategy to generate income as gold itself does not provide any.

A call option is a derivative that allows the holder of the call to buy the underlying security at a set price within a specified time frame. The party that sold/created the option is obligated to sell the underlying security at that specified price, regardless of what the current price is. The seller keeps the amount received for the option whether it is exercised or not. Writing call options adds an additional level of risk to the ETF, but it does provide for a steady stream of income.

Horizons COMEX® Gold ETF (HUG)

The Horizons Comex® Gold ETF invests indirectly in COMEX® gold futures contracts using forward agreements offered by Canadian banks. The forward agreements provide the ETF with the return on the next month’s futures contract in exchange for a predefined cash payment. Since the gold futures are traded in USD, the ETF hedges the currency exposure back to CAD.

Horizons BetaPro COMEX® Gold Bullion Bull Plus ETF (HBU)

This ETF seeks to provide 200% of the DAILY performance of COMEX® gold futures contract for the next month. It does this through forward agreements with Canadian banks. Since it is rebalanced daily, holding it for longer periods of time may not give you the result you’re looking for even if gold prices rise.

ETFs That Own Gold Company Shares

BMO S&P/TSX Equal Weight Global Gold Index ETF (ZGD)

This ETF invests in shares of gold mining companies in the S&P/TSX Equal Weight Global Gold Index. As the name suggests, it invests beyond just Canadian companies. Unlike most indexes the companies in the index are weighted equally, rather than by size. This helps to avoid having a large exposure to any one company. ZGD does not hedge its non-Canadian Dollar exposure.

BMO Junior Gold Index ETF (ZJG)

ZJG invests in shares of gold mining companies in the Dow Jones North America Select Junior Gold Index. As the name implies, this index includes mostly small companies; the median market cap was $800 million as of June 30, 2015. As of that date 100% of the companies were Canadian.

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

This ETF invests in shares of gold mining companies in the S&P/TSX Global Gold Index. The weight of any one company is limited to 25%. XGD does not currency hedge its non-Canadian holdings.

Horizons Enhanced Income Gold Producers ETF (HEP)

HEP holds an equally weighted portfolio of the largest and most liquid North American gold mining companies and uses a covered call strategy to earn additional income.  Any non-Canadian holdings are currency hedged.

Horizons BetaPro S&P/TSX Global Gold Bull Plus ETF (HGU)

This ETF seeks to provide 200% of the DAILY performance of the S&P/TSX Global Gold Index. It does this through forward agreements with Canadian banks. Since it is rebalanced daily, holding it for longer periods of time may not give you the result you’re looking for even if gold prices rise.

So those are your options. Which should you buy?

If you want to invest in gold directly iShares Gold Bullion ETF (CGL) and SPDR Gold Shares (GLD) are your best choices. GLD has a lower MER and bid/ask spread, but since it trades in USD, if you don’t have any USD available you will need to convert CAD to USD. Most brokers charge a commission which is part of the quoted exchange rate and can be up to 2% each time you convert currency. Since the cost difference is only 0.27%, you would need to hold GLD for more than 10 years to recoup the foreign exchange cost when you buy and sell the USD.

If you are looking to invest in gold companies, your best option is probably iShares S&P/TSX Global Gold Index ETF (XGD). It offers the lowest cost and has exposure to the global gold mining industry, not just Canada. If you are looking for exposure to junior gold mining companies, BMO Junior Gold Index ETF (ZJG) would be a good choice.

It would be best to avoid the leveraged ETFs as they are designed to provide 200% of the DAILY price movement of their stated index. Since they are rebalanced daily, if you hold the ETF for longer periods, you are unlikely to get the result you are hoping for. Plus, they are quite expensive. If cost is your primary concern, you should also avoid the ETFs that write covered calls.