Is Gold Good 'Fire Insurance?'

GOLD AS HEDGE

AGAINST FALLING DOLLAR

This is a look at Gold as a hedge against uncertain financial times. This is NOT financial advise and should not be considered as such. It has been prepared using input from Ai which has included current Canadian government budget and US dollar exchange rates in this comparison.

Again this is not financial advice and any decisions you make with your personal wealth is your decision and Canadian Sentinel bears no responsibility for your choices.

That said, consider how Gold has been used for thousands of years and nearly every society.

Evaluating gold as a hedge

Discussing gold as a hedge

Gold historically retains purchasing power over the long term, but its volatility means it might not always be the best short-term move. It's a potential hedge, though, and we should highlight some drawbacks like storage, insurance, liquidity, premiums, and no yield. Alternatives like gold ETFs (GLD, PHYS, IAU) or Royal Canadian Mint coins may be worth considering. It's important to note that the price of gold in CAD is impacted by CAD/USD fluctuations. I'll look up more current information on this.

Exploring gold as a hedge

Gold historically retains purchasing power over the long term, although it can be volatile and might not be the best short-term investment. It's a potential hedge, with drawbacks such as storage costs, insurance requirements, no yield, liquidity concerns, and premiums. I’ll also consider alternatives like gold ETFs (GLD, PHYS, IAU) or Royal Canadian Mint coins. Since the price of gold in CAD is influenced by CAD/USD, if the CAD weakens against USD, gold in CAD may see an increase in price.

Answering on gold as a hedge

Given the current Canadian fiscal deficit and CAD depreciation, we should consider gold as a hedge against inflation. With CAD/USD at 0.723, gold's recent performance is impressive, reaching a record high of $3,500 per ounce. Historically, gold maintains long-term value and can act as a hedge, but it's volatile. Remember, gold is priced in USD, which impacts Canadians further if CAD weakens. Don't forget about alternatives like TIPS and diversified portfolios. Always include disclaimers — I can't give financial advice.

Thought for 1m 3s

1  Where the Canadian dollar and Ottawa’s finances stand today

Loonie under pressure. On May 5 2025 the mid‑market rate sits around C$1 = US$0.723 after drifting as low as US$0.68 earlier this year—evidence the CAD has been losing purchasing power against the greenback (Wise).
Persistent federal deficits. Finance Canada’s most recent Fiscal Monitor shows Ottawa ran a $5.1 billion deficit in January 2025, more than double the shortfall one year earlier (Government of Canada). The Fall Economic Statement still projects annual deficits above $40 billion through 2026 (Budget Canada).
These twin pressures—currency weakness and rising federal debt—explain why many Canadians are revisiting “hard‑asset” hedges such as gold.

2  What gold is doing right now

Metric	1 Jan 2025	5 May 2025	YTD change
Spot gold (USD/oz)	≈ $2,770	$3,240–3,500 (record high in April)	+26 % (Reuters)
Spot gold (CAD/oz*)	≈ C$3,800	C$4,450–4,800	+≈25 %

*CAD figure reflects the USD price multiplied by the current CAD → USD rate; when the loonie weakens, the CAD price of gold rises even if the USD price is flat.

Gold’s rally has been fuelled by:

Aggressive central‑bank buying (especially China).
Negative real yields. When inflation outpaces policy rates, the “opportunity cost” of holding zero‑yield bullion falls (Investopedia).
Geopolitical risk premium. Investors treat bullion as a “fear trade.”

3  Has gold always held its value?

Period	What happened	Purchasing‑power outcome
Roman Empire → Middle Ages	One gold solidus/sovereign roughly covered a professional’s monthly wages for centuries.	Stable in real‑goods terms.
1971 – 1980 (post‑gold‑standard, oil crisis)	USD gold price surged 1,900 % from US$35 to US$678.	Excellent inflation hedge.
1980 – 2000 (Volcker tight money, tech boom)	Price slid 60 % in real terms; S&P 500 out‑performed handily (Investopedia).	Poor hedge for two decades.
2000 – 2023 (dot‑com bust, GFC, pandemic)	Price rose from US$270 to US$2,070 (CAGR ≈ 9 %).	Strong crisis‑period protector.
2025 peak	Inflation‑adjusted price now exceeds the 1980 high (Reuters).	Looks pricey vs long‑run trend.

Key takeaway: Over very long horizons (centuries) an ounce of gold has tended to buy a similar “basket” of real goods (bread, tailored suit, high‑end bicycle). Over decades, however, gold can underperform or outperform dramatically; it is volatile, not a guaranteed steady store of purchasing power.

4  Should you buy bullion as a Canadian hedge?

Advantage	Why it matters to Canadians
Currency hedge	Gold is priced in USD. If the CAD weakens, the CAD gold price rises even when the USD price is flat—double protection.
No counter‑party risk	Physical bars/coins are no one else’s liability—helpful if you distrust banks or governments.
Diversifier	Gold’s correlation with stocks and bonds is low to mildly negative, lowering overall portfolio volatility.

Drawback	Mitigation ideas
No yield	Limit allocation (5‑15 % of investable assets) so lost income is acceptable.
Premiums & storage	Use Royal Canadian Mint wafers, reputable dealers, or an insured vault; compare costs to low‑fee ETFs such as PHYS (Sprott) or GLDM.
Volatility & timing risk	Accumulate gradually (“dollar‑cost average”) rather than lump‑sum near record highs.
Tax treatment	Capital gains on disposition are taxable; track your adjusted cost base carefully.

5  Practical ways to get exposure

Royal Canadian Mint “Maple Leaf” coins (1 oz, 0.9999 fine). Widely recognized and easy to resell.
Good‑delivery 1 oz or 100 g bars from accredited dealers.
Allocated, segregated vault accounts (e.g., Kitco, RCM) for larger sums; eliminates burglary risk at home.
Canadian‑listed ETFs (e.g., MNT, CGL, PHYS) if you prefer RRSP/TFSA eligibility and easier liquidity.
Gold royalty or mining equities—offer leverage to the metal but carry company‑specific risk; not a substitute for bullion.

6  Bottom line

Gold has a centuries‑long record of eventually preserving purchasing power, but in human‑sized timeframes it can suffer long droughts. With the loonie soft and Ottawa still borrowing heavily, a moderate bullion allocation can be a sensible insurance policy—provided you:

allocate only a slice of your portfolio,
understand the costs of owning and storing it, and
accept that gold’s price can fall sharply—even as deficits rise.

Rule of thumb: think of gold like fire insurance on your financial house—you hope it never “pays out,” but you’re glad you had it if currency or credit markets catch fire.

(This overview is for educational purposes and not personalized financial advice. Consider consulting a licensed adviser before making major allocation changes.)