However, the guide leaves out an important new entrant. Wealthsimple has since launched direct physical gold trading and made a splash. The launch includes promotional giveaways of 1kg gold bars, 10 one-ounce coins and 50 tenth-ounce coins to qualified customers who deposit funds and complete a survey. Promotion ends December 5th.
Wealthsimple has a history of shaking up Canada’s financial services landscape. It’s ahead of the big banks with features like zero-commission options trading, direct indexing, and now access to physical gold within a brokerage account. On the surface, this combination of simplicity and novelty is attractive.
The question is whether it can rise above the headline hype. Below is my analysis of how Wealthsimple’s physical gold trading works and how it compares to gold ETPs.
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Wealthsim Physical Gold Trading Explained
Wealthsimple’s physical gold products are not stocks or funds. When you buy it, you’re buying digital interest on a portion of your physical gold reserves, denominated in Canadian dollars. The gold itself is stored at the Royal Canadian Mint and the Brinks and is held on a “segmented basis at planned levels.” Simply put, your gold is held in custody alongside the gold of other Wealthsimple customers and separately from Wealthsimple’s assets.
You can access this service through all of Wealthsimple’s self-service accounts. This includes registered and non-registered taxable accounts.
Transactions are executed at the Canadian dollar spot price, and a 1% transaction fee is charged for both purchases and sales. This means buying and selling immediately will incur a 2% round trip cost. However, there are no ongoing storage fees, and like Wealthsimple’s crypto platform, gold trading is available 24 hours a day, 7 days a week.
Physical redemption is where limitations and costs become apparent. The exchange of gold bars can only be done through non-registered accounts, and the price is not cheap. The fee for exchanging one-ounce coins is 2.25%, while the fee for exchanging tenth-ounce coins is 11%. These fees include minting, insurance and delivery, and are handled by Silver Gold Bull, one of the largest online gold bullion dealers. If physical delivery is the goal, the economics are significantly improved when exchanging larger amounts rather than smaller denominations.
Wealthsimple Physical Gold Trading and Gold ETP
For now, major gold ETPs are generally less expensive to trade and cheaper to hold over short and medium-term holding periods. For a concrete comparison, we can look at three Canadian-listed gold instruments that actually offer physical redemption: Purpose Bullion Fund (KILO), Sprott Physical Gold Trust (PHYS), and the Canadian Gold Reserve (MNT).
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To estimate total cost of ownership, I combine each product’s administrative expense ratio (MER) with its median bid-ask spread over the last 30 days. This provides a reasonable estimate of the cost of buying and holding the product, assuming no sales.
KILO is one of the most cost-effective options. Its MER is 0.28%. At the close on December 12, the buy price was $61.88 and the sell price was $62.00, meaning a spread of $0.12, or about 0.19%. Compared to Wealthsimple’s 1% upfront fee, KILO remains cheap for the first three years or so of holding. Only after that does Wealthsimple’s lack of ongoing fees begin to offset its higher cost of entry.
PHYS is more expensive. Its MER is 0.39%, and on the same day, its bid price was $45.18 and its sell price was $45.40, a spread of $0.22, or about 0.49%. In this case, Wealthsimple’s 1% gold trading fee broke even earlier, but still after holding for about 1.3 years.
MNT’s fees are in the middle, with a MER of 0.35%, but its transaction costs are significantly higher due to poor liquidity. As of the closing price on December 12, the buying price of MNT was US$64.29 and the selling price was US$65.00, with a spread of US$0.71, approximately 1.10%. In this case, Wealthsimple is cheaper on entry, even before accounting for MNT’s ongoing MER.
All in all, Wealthsimple’s physical gold product is not a low-cost option for short-term holding periods. Low MER products such as KILO and PHYS are generally cheaper for short-term or medium-term investors. Wealthsimple only starts to make financial sense over longer holding periods, where avoiding annual MER eventually outweighs the higher upfront fees. MNT is the main exception, with its wider spreads almost immediately tipping the comparison in Wealthsimple’s favour.
But what about redemption?
If your plan is to eventually own your Wealthsimple digital gold, the process is relatively straightforward. You make your request directly through the app, and Wealthsimple states that delivery is handled by an insured courier and usually arrives within 7 to 10 business days. In contrast, physical redemptions for exchange-traded products are much more restricted.
For example, KILO only allows redemption in one kilogram increments. For context, Silver Gold Bull currently prices one kilogram of gold bars at approximately C$193,631, making redemptions out of reach for most retail investors.
PHYS is not more flexible. Its redemption rules require investors to hold enough shares to correspond to standard London Good Delivery gold bars, which weigh approximately 400 troy ounces. This represents a very large capital commitment.
