Different ways to invest in gold
There are many ways one can start investing in gold. You can either buy physical gold in the form of coins, bullion or bars from financial institutions or reputable retailers and pawnshops or purchase “paper gold”, which includes gold exchange traded funds (ETFs), gold-linked unit trust funds, goldlinked notes and spot gold, as well as gold mining stocks.
There is room in an investors’ portfolio for any type of gold investments as each has different liquidity profiles and risks, says World Gold Council (WGC) regional CEO Andrew Naylor.
Physical gold, for example, may present investors with storage, insurance and cost issues, while also not providing investors with any dividend or returns while in storage. Some of these issues can be eliminated by opening a gold savings account, which allows investors to buy and sell gold without having to physically purchase them.
AxiTrader chief global market strategist Stephen Innes says that gold ETFs would be the best option for a retail investor, discouraging leveraged products for non-traders due to its highly speculative nature.
He also does not recommend investors to look at gold mining stocks amid the current market landscape as the process to start up a new mine is generally perceived as a decade-long process. “The prices of gold stocks are obviously going to go up, but they are not going to go up in sync with what the gold markets are trading at. This is because largescale operators’ reinvestment to open a new mine involves a long process of getting the rights needed to run their operations. It is a 10-year investment cycle that is very capital-intensive,” says Innes.
Meanwhile, Naylor reminds investors that not all ETFs are backed by physical gold — some are synthetic. “When an ETF is backed by physical gold, the investors effectively earn the physical gold and hence they do not face counterparty risk, unlike investing in gold-related stocks.”
World Gold Trust Services, a wholly-owned subsidiary of WGC, is the sponsor of SPDR Gold Shares, the world’s largest physically-backed gold ETF. Cross-listed in Singapore and available in the Singapore dollar, the fund seeks to reflect the performance of the price of gold bullion.
Buying one ounce of gold through SPDR Gold Shares may be relatively cheaper compared to buying and holding physical gold as the transaction costs are generally lower than the costs associated with the purchase and storage of physical gold, according to its product highlights. It is also highly liquid, as the liquidity comes from both primary market and secondary market trading on exchanges.
As at Dec 31, 2021, the SPDR Gold Shares ETF had provided an annualised return on the net asset value of 11.95%, 9% and 1.05% in the three-year, five-year and 10-year periods respectively. The fund currently has over 1,091 tonnes of gold in its trust worth US$67 billion ($90.1 billion).
Other prominent physical gold backed ETFs include iShares Gold Trust, Aberdeen Standard Physical Gold Shares ETF and Goldman Sachs Physical Gold ETF.
The younger generation, which may want fewer barriers to entry and more convenience, can opt to invest via digital platforms that allows them to purchase gold starting from a very low base. Singapore-based Hugo, for example, lets investors buy and sell gold at any amount starting from 1 cent.
Naylor says it is important that the gold market is increasingly accessible to the younger generation, who may see gold as old-fashioned compared to other forms of investment such as cryptocurrencies. “Our research suggests that gold is still attractive to young people in India, Thailand and Vietnam. These are the markets where there’s cultural affinity for gold,” he adds.