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Gold bars are stacked in the Pro Aurum gold house in Munich, Germany, in 2014.

MICHAEL DALDER/Reuters

It's been a perceived financial safe haven for centuries. Gold still has a rarefied lustre as an asset to buy when times are tough.

People buy gold because they don't have any faith in the U.S. dollar, or any paper currency for that matter, says Damian Rozen, a manager at the precious-metals exchange Canadian PMX Corp. in Richmond Hill, Ont.

There is no typical Canadian gold buyer, Mr. Rozen says.

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Some are less well-off and buy a few thousand dollars' worth, while a select few have the means to spend millions. Some are new Canadians, others have deep roots. Their cultural backgrounds are equally varied.

But almost all of them display a similar pattern, he says.

"Funny thing is, when gold or metals take a dip [in price], you would think people would buy because the value is lower, but it's always the opposite. People come in and sell because they think it's dropping so much they want to protect their investment. Then prices increase, and they want to catch the upswing, so they buy."

Gold bullion has been a popular investment for Canadians feeling deeply anxious about the performance of their economy, particularly during periods of turmoil – think the immediate aftermath of 9/11 or during the Great Recession of 2008-09.

Investors can purchase gold exchange-traded funds or buy stocks in a gold-mining company.

But those who fear nightmare scenarios also buy and store gold in their own homes or another, more secure site. It's a strategy that is not looked upon favorably by financial advisers.

"It's not an investment, per se," says Cynthia Kett, a partner with Toronto-based wealth management firm Stewart & Kett Financial Advisors Inc.

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"Usually when you invest in something, you hope it will increase in value over time in some predictable way. But when you have an ounce of gold and put it away, you'll still just have an ounce of gold. There's no such thing as compound growth with physical gold.

"The price is not predictable. There's no earnings or cash flow, and there's no predictability in the value of gold. It's an emotional and speculative commodity often driven by fear, so it's very volatile for that reason."

Even the perception of gold as a doomsday investment may be misplaced.

A recent analysis by economists Robert J. Barro and Sanjay Misra published by the Royal Economic Society found that from 1836 to 2011, the average real rate of change in the price of gold was just 1.1 per cent per year, and that the price change for gold in periods of economic stress was almost the same as in periods of stability.

Their conclusion: "Gold has not served as a hedge against macroeconomic declines."

Worse, says Ian Black, a partner at Vancouver-based financial advisory Macdonald Shymko & Co. Ltd., gold's volatility can result in direct losses if prices drop suddenly. Then investors have to factor in the opportunity cost of investing that money elsewhere.

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"You can hold a gold bar for 10 years, and if you paid $1,000 for it and it's still worth $1,000 in 10 years, you've lost money," he says. "You've lost [inflationary gains] at least. And with physical gold you have a storage problem depending on how much you're holding."

Not surprisingly, storing gold in a residential home comes with a raft of considerations – security being the obvious one if that house isn't equipped with a safe. Then there's the challenge of transporting the metal, which is heavy and cumbersome, to and from a holding facility.

To manage that process and mitigate risk, gold dealers such as Border Gold Corp., based in White Rock, B.C., offer insured shipping on all purchases. But as managing director Robert Levy explains, many home insurance policies won't cover loss or theft of precious metals beyond basic jewelry, and those that do can be prohibitively expense for the average gold buyer.

Many gold investors store their holdings at third-party facilities for an annual fee of about 0.5 per cent, Mr. Levy says. Not an unreasonable amount, to be sure, but one that cuts into any meagre return that a gold investor might otherwise earn.

Others might opt to hold their gold in certificates similar to a stock, with the gold held at a bank or storage facility. But if a bank goes under, a gold investment can also disappear, a possibility that is likely to deter any investor troubled enough about systemic financial security to consider holding physical gold in the first place.

Then there are the tax implications. Ian Chappelle, a tax adviser with Diamond Tree Accounting in Barrie, Ont., notes that at one time, gold was seen as an effective tool for hiding wealth and passing it along to successive generations because it was considered "out of the system."

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That's far more challenging today, however, as gold bars have serial numbers for tracking during transactions.

Any sale of gold bullion triggers a capital gain or loss in the eyes of the Canada Revenue Agency, Mr. Chappelle says. That could result in a hefty tax bill if an investor managed to time the market and reap a significant appreciation in the value of their gold.

In the end, Mr. Black says, investing in a gold mining company makes more sense than buying bars of gold and storing them away.

"In Canada we have significant exposure to mining companies, many of which are in the gold sector," he explains. "Some of the larger ones pay dividends and they're much more liquid and trade daily.

"Over all, we don't recommend people owning physical gold. It doesn't do what people think it will do for them in terms of preserving wealth and being a scorched-earth, head-for- the-hills [investment tool]."

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