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Gold and Foreign Exchange Fund

Canadians can invest in gold in various ways, including solid gold bars, gold stocks, and gold exchange-traded funds (ETFs). When the stock market is in decline, investors flock to gold, which is a good hedge against potential stock market downturns. However, regardless of how active an investor you are, gold may be quite volatile, so you should limit your exposure.

The Top Tips When Investing in an ETF

You can buy an ETF that tracks a comprehensive index, such as the S&P 500, for example. Individual stocks representing almost every industry category imaginable are included in that index. However, there is only one sector in a Gold ETF: precious metals. For this reason, the gold market is highly volatile.

Gold bullion is not as liquid as gold stocks or exchange-traded funds (ETFs). They must be safely contained, and they cannot be transacted into a personal trading account in a matter of seconds. Finally, gold bullion will not provide an investor with regular cash flow in the form of a dividend.

Before you buy, keep in mind that gold, mainly when acquired as an ETF, is considered a high-risk investment. Your investment may lose value. Thus it should be treated as a long-term investment in a well-diversified portfolio. You should also keep your gold exposure to a minimum. If you have a portfolio with more than 10% weighting, you may be taking on too much risk. 

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Foreign Exchange Fund 

A central bank's foreign exchange reserves are assets kept in foreign currencies. These reserves are utilized to back liabilities and exert monetary policy impact.  

These assets like banknotes and deposits are retained for a variety of reasons. Still, the most important is to ensure that a central federal agency has backup money if their currency diminishes rapidly or becomes insolvent entirely.

According to economists, it is preferable to have foreign exchange reserves in a currency that is not directly linked to the country's currency to offer a buffer in the event of a market shock. However, as economies have become more connected and worldwide trading has been more accessible, this approach has become far more challenging.

China, which has more than $3 trillion in foreign currency, is the world's largest current foreign exchange reserve holder. The majority of their reserves are in US dollars. One of the reasons for this is that because most international trade is conducted in dollars, it is easier to implement.

The Bank of Canada, acting as an agent for the federal government, intervenes in the foreign exchange market using the government's foreign currency holdings in the Exchange Fund Account. The US dollar, euro, British pound, and Japanese yen are all held by the Fund.

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