Tag: physical gold

That guide, however, left out one important new entrant. Wealthsimple has since launched direct physical gold trading, and it arrived with a splash. The rollout included a promotional giveaway featuring a one-kilogram gold bar, 10 one-ounce coins, and 50 one-tenth-ounce coins for eligible clients who deposited funds and completed a survey. The promotion wrapped up on December 5.

Wealthsimple has a history of shaking up the Canadian financial services landscape. It moved ahead of the big banks on features like zero-commission options trading, direct indexing, and now physical gold access inside a brokerage account. On paper, that combination of simplicity and novelty is appealing.

The question is whether it holds up beyond the headline hype. Here’s my analysis on how Wealthsimple’s physical gold trading works, and how it stacks up against gold ETPs.

Wealthsimple Physical Gold Trading explained

Wealthsimple’s physical gold offering is not a stock or fund. When you buy it, you are purchasing a fractional, Canadian dollar-denominated digital interest in physical gold reserves. The gold itself is stored at the Royal Canadian Mint and Brinks, and it is held at the “program level on a segregated basis.” In plain terms, your gold is held in trust alongside other Wealthsimple clients’ gold and is kept separate from Wealthsimple’s assets.

You can access this offering through all of Wealthsimple’s self-directed accounts. That includes registered as well as non-registered, taxable accounts. 

Trades are executed at CAD spot prices and carry a 1% transaction fee on both buys and sells. That means buying and immediately selling would result in a 2% round-trip cost. However, there is no ongoing storage fee and, like Wealthsimple’s crypto platform, gold trading is available 24 hours a day, seven days a week.

Physical redemption is where the constraints and costs become apparent. Redemption for bullion is only available from non-registered accounts, and it is not cheap. Redeeming a one-ounce coin costs 2.25%, while redeeming a one-tenth-ounce coin costs 11%. These fees cover minting, insurance, and delivery, with fulfillment handled through Silver Gold Bull, one of the largest online bullion dealers. If physical delivery is the goal, the economics clearly improve when redeeming larger amounts rather than small denominations.

Wealthsimple Physical Gold Trading vs. gold ETPs

Right off the bat, the major gold ETPs are generally cheaper to trade and own over short and medium holding periods. To make the comparison concrete, it helps to look at the three Canadian-listed gold vehicles that actually offer physical redemption: the Purpose Gold Bullion Fund (KILO), the Sprott Physical Gold Trust (PHYS), and Canadian Gold Reserves (MNT).

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To approximate total cost of ownership, I combine each product’s management expense ratio (MER) with its most recent 30-day median bid-ask spread. This gives a reasonable estimate of the cost of buying and holding the product, assuming no sale.

KILO is among the most cost-efficient options. It carries a 0.28% MER. At the December 12 market close, it traded with a bid of $61.88 and an ask of $62.00, implying a $0.12 spread, or roughly 0.19%. Compared with Wealthsimple’s 1% upfront fee, KILO remains cheaper for roughly the first three years of holding. Only after that does Wealthsimple’s lack of an ongoing fee begin to offset its higher entry cost.

PHYS is more expensive. Its MER is 0.39%, and on the same date it showed a bid of $45.18 and an ask of $45.40, a $0.22 spread, or roughly 0.49%. In this case, Wealthsimple’s 1% gold trading fee breaks even sooner, but still only after about 1.3 years of holding. 

MNT sits in the middle on fees with a 0.35% MER, but its trading costs are meaningfully higher due to poor liquidity. At the December 12 close, MNT had a bid of $64.29 and an ask of $65.00, a $0.71 spread, or roughly 1.10%. In this case, Wealthsimple is cheaper immediately on entry, even before considering MNT’s ongoing MER.

Putting it all together, Wealthsimple’s physical gold offering is not the low-cost choice for short holding periods. Low-MER products like KILO and PHYS are usually cheaper for investors with shorter or medium-term horizons. Wealthsimple only begins to make economic sense over longer holding periods, where avoiding an annual MER eventually outweighs the higher up-front fee. MNT is the main exception, where wide spreads tilt the comparison in Wealthsimple’s favour almost immediately.

But what about redemption?

If your plan is to eventually take possession of your Wealthsimple digital gold, the process is relatively intuitive. You make the request directly through the app, and Wealthsimple states that delivery is handled by insured courier, typically arriving within seven to 10 business days. By comparison, physical redemption of exchange-traded products is far more restrictive. 

KILO, for example, only allows redemptions in one-kilogram increments. For context, Silver Gold Bull currently prices a one-kilogram bar at roughly $193,631 CAD, which puts redemption well out of reach of most retail investors. 

PHYS is not much more flexible. Its redemption rules require investors to hold enough shares to correspond to a standard London Good Delivery bar, which weighs around 400 troy ounces. That represents a very large capital commitment.