However, this guide omitted one essential latest addition. Since then, Wealthsimple has introduced direct physical gold trading, with great success. The launch included a giveaway of a 1-kilogram gold bar, 10 1-ounce coins and 50 1/10-ounce coins for eligible customers who deposited funds and accomplished a survey. The campaign ended on December fifth.
Wealthsimple has a history of shaking up the Canadian financial services landscape. It has been ahead of the massive banks in features like commission-free options trading, direct indexing, and now access to physical gold through a brokerage account. On paper, this mix of simplicity and novelty is appealing.
The query is whether or not it lives as much as the headline hype. Here is my evaluation of how Wealthsimple’s physical gold trading works and the way it compares to gold ETPs.
The Best Robo-Advisors in Canada: Which One Tops Our List?
Wealthsimple Physical Gold Trading Explained
Wealthsimple’s physical gold offering will not be a stock or fund. When you buy it, you might be purchasing a fraction of a Canadian dollar-denominated digital share of physical gold reserves. The gold itself is stored on the Royal Canadian Mint and Brinks and held on the “program level on a segregated basis.” In plain language: Your gold is held in trust alongside the gold of other Wealthsimple customers and kept separate from Wealthsimple’s assets.
You can access this offer through all Wealthsimple self-directed accounts. This includes each registered and unregistered taxable accounts.
Trades are executed at CAD spot prices and a 1% transaction fee applies to each purchases and sales. This implies that in the event you buy and sell immediately, you’d incur 2% of the round trip costs. However, there isn’t a ongoing storage fee and, like Wealthsimple’s crypto platform, gold trading is obtainable 24 hours a day, seven days per week.
When it involves physical redemption, the constraints and costs turn into clear. Redeeming precious metals is barely possible through unregistered accounts and will not be low-cost. Redeeming a 1-ounce coin costs 2.25%, while redeeming a tenth-ounce coin costs 11%. These fees cover minting, insurance and delivery. Processing takes place via Silver Gold Bull, one in every of the biggest online gold bullion dealers. If physical delivery is the goal, the economics improve significantly when larger amounts are redeemed relatively than small denominations.
Wealthsimple Physical Gold Trading vs Gold ETPs
At first glance, the big gold ETPs are generally cheaper to trade and own for brief and medium holding periods. To make the comparison more concrete, it helps to try the three gold vehicles listed in Canada that really offer physical redemption: the Purpose Gold Bullion Fund (KILO), the Sprott Physical Gold Trust (PHYS) and Canadian Gold Reserves (MNT).
The article continues below promoting
X
To estimate total cost of ownership, I mix each product’s management expense ratio (MER) with essentially the most recent 30-day median bid-ask spread. This gives an affordable estimate of the fee of buying and storing the product assuming no sale occurs.
KILO is probably the most cost-effective options. It has a MER of 0.28%. As of the close on December 12, it was trading at a bid of $61.88 and an ask of $62.00, a variety of $0.12, or roughly 0.19%. Compared to Wealthsimple’s 1% upfront fee, KILO stays cheaper for roughly the primary three years of holding. Only then does Wealthsimple’s lack of an ongoing fee begin to offset the upper entry costs.
PHYS is dearer. Its MER is 0.39% and on the identical day it showed a bid price of $45.18 and an ask price of $45.40, a variety of $0.22 or about 0.49%. In this case, Wealthsimple’s 1% gold trading fee breaks down even sooner, but still only after about 1.3 years of ownership.
MNT is in the course of the pack when it comes to fees with an MER of 0.35%, but its trading costs are significantly higher resulting from low liquidity. At the close of trading on December 12, MNT had a bid price of $64.29 and an ask price of $65.00, a variety of $0.71, or roughly 1.10%. In this case, Wealthsimple is cheaper immediately upon entry, even before MNT’s ongoing MER is taken under consideration.
All in all, Wealthsimple’s physical gold offering will not be the cost-effective alternative for brief holding periods. Low-MER products similar to KILO and PHYS are generally cheaper for investors with a shorter or medium-term investment horizon. Wealthsimple only makes economic sense for longer holding periods, when avoiding an annual MER ultimately outweighs the upper upfront fee. MNT is the largest exception, where large spreads almost immediately tilt the comparison in Wealthsimple’s favor.
But what about redemption?
If you propose to take ownership of your Wealthsimple digital gold sooner or later, the method is comparatively intuitive. You make the request directly through the app and Wealthsimple says the delivery might be handled by an insured courier service that typically arrives inside seven to 10 business days. In comparison, physical redemption of exchange-traded products is way more restrictive.
KILO, for instance, only allows returns in one-kilogram increments. For comparison, Silver Gold Bull currently sells for around C$193,631 for a one-kilogram bar, putting repayment out of reach for many retail investors.
PHYS is not way more flexible. Redemption rules require investors to carry enough shares to be comparable to a typical London Good Delivery bar weighing roughly 400 troy ounces. This represents a really large capital investment.
