This article was originally published on 29 April 2020 and updated to reflect new information. Additional reporting by Angela Koo.
In times of crisis, such as the one we find ourselves in right now, gold is regarded as a “safe haven” asset class that holds its value well amid financial market crashes. This has proven to be true during the current COVID-19 situation and resulting market selloff, during which gold prices have steadily increased.
Gold also gives you a hedge during tough times (events which cause the value of paper investments like equities and bonds to decrease) or uncertain market conditions
For investors in Singapore who wish to gain exposure to gold as an asset class, there are multiple ways to do so, each with their own set of pros and cons across factors like costs, liquidity, logistical constraints, and suitable timeframe for holding.
#1 Buying And Selling Physical Gold
The oldest method, which has been practised for thousands of years, is to buy and hold physical gold, ideally in the form of pure gold bars or gold bullion coins, although keeping gold jewellery is pretty popular as well.
There are multiple challenges to doing this, though you can argue that some of them are more of an inconvenience than shortcomings.
First, you need to transport and store the gold. This shouldn’t be hard for most people, since a kilogram of gold is worth about $80,000 based on today’s prices.
Secondly, wherever you choose to store your gold, you have to make sure you protect it, whether it’s a safe at home, or pay for a safety deposit box at a bank.
The third is that when you do want to convert your gold into cash, you’re at the mercy of gold dealers or pawnshops, who often charge a healthy margin for being willing to take in your gold or give unfavourable rates compared to the spot price.
Finally, with physical gold, you’re at the mercy of whatever denominations your coins or bars are. You can’t decide to just liquidate half your gold bar and keep the other half. It’s all or nothing.
#2 Buying Gold Certificates
Sometimes referred to as “paper gold”, these gold certificates can be exchanged for physical gold or cash and have no expiry date. When these certificates are issued, the physical gold that they represent is stored somewhere.
Gold certificates provide their owners with the same benefits of owning physical gold, with an added layer of convenience and security.
However, by not physically keeping the gold you paid for, investors will need to trust that the issuing authority will honour their legal obligations to hand over physical gold or cash when demanded, and that they do not sell rights to the same physical gold to multiple people.
To prevent being scammed, it is important to deal only with well-regulated entities.
#3 Opening A Gold Savings Account
A cousin of gold certificates, you can think of a “gold savings account” as a ledger where you can buy and sell gold with more granularity and in varying amount, as opposed to being limited by the denomination of your gold certificate.
In Singapore, UOB offers gold savings accounts, with minimum quantity per transaction of 5 grams. There is a monthly service charge of 0.25% p.a. on the highest gold balance that month, subject to a monthly minimum charge of 0.12 grams of gold.
#4 Investing In A Gold Exchange Traded Fund (ETF)
Just as there are Exchange Traded Funds (ETFs) that track the prices of stock, bond and other indices, there are also ETFs that aim to track the price of gold.
Since they are traded on the exchange, it means that investors enjoy greater liquidity and price transparency, while not needing to worry about keeping and storing physical gold. They also have the benefit of allowing investors to monitor their gold holdings and returns alongside their other stock and fund investments.
Popular gold ETFs include the SGX-listed SPDR Gold Shares (SGX: O87), the NYSE-listed SPDR Gold MiniShares (NYSE: GLDM) and iShares Gold Trust ETF (NYSE: IAU). As with all other ETF investments, investors should look at each fund’s expense ratio and tracking error when deciding which ETF to use.
Update: Starting from 30 June 2021, Singapore investors can buy SPDR Gold Shares using Singapore dollars. The existing SPDR Gold Share (SGX:O87) is traded in US dollars. The new currency option for SPDR Gold Shares will allow Singapore investors to participate in a gold ETF using Singapore dollars on the local exchange.
#5 Trading Gold Contracts For Difference (CFD)
A Contracts For Difference (CFD) provider like IG gives traders the option to trade a wide range of commodities, including gold, platinum, aluminium, orange juice, soya beans and even live cattle.
For the uninitiated, a CFD allows you to trade on price changes (both long and short positions) of a specific underlying asset, which can be commodities as mentioned earlier, stocks, foreign currency, and more. Most CFD providers also allow you to trade using leverage, allowing you to magnify your gains (as well as losses).
CFDs are meant for short-term trading and not long meant for holding on for long-term price appreciation.
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