Gold Exchange-traded Funds offer a viable alternative to bullion investing. You can diversify a part of investment risks by including them in your portfolio and save time and effort managing gold ETFs instead of gold bullion.
Gold ETFs or physical gold don’t yield dividends or interests. Capital appreciation is the only way to profit from investing in the commodity. Like other commodities, you may suffer from gold price retreats when you think you may gain from it.
The truth: “Research before investing” applies to gold ETFs. The following may provide some insight you should know forming a part of your research about the investment.
What is a Gold ETF?
A gold exchange-traded fund is a collective investment trust holding physical gold and tracks gold prices to reflect its value. The ETF divides its ownership into numerous shares to be subscribed by investors.
A gold ETF can be an actively-managed fund. A fund manager aims to outperform the gold market, and the management fee is higher. A passively-managed gold fund tracks gold prices and has a lower expense ratio.
Investing in a gold ETF distinguishes from buying physical gold. When you buy into a gold ETF, you possess a part of a fund owning physical gold bullion. Though the fund has gold bullion as its underlying assets, you do not have direct ownership of the gold.
Like stocks or bonds, gold ETFs are tradable investment tools in exchanges. You can keep updated by the continuous feeds of gold ETF prices and the news-related gold market. Find out which ETF are the best to invest in Singapore.
Gold bullion charges an expense ratio to run a fund compared to bullion.
Pros and Cons of Investing in Gold ETFs
Pros
- Flexible investment
Rather than buying a gold bar, you invest in the units of a gold ETF- a fractional share of a fund’s ownership. SPDR Gold Share(SGX: O87) unit price(USD160 per unit) is about one-tenth of a gold bar price of USD1,700, the minimum investment.
- Diversification
You may reduce investment risks by including gold ETFs as a portfolio component. Experts say the gold investment can eliminate 10% to 15% of risks from a portfolio of non-gold themes. The diversification benefit is achieving a stated return without increasing unnecessary risks contrasted with a portfolio without diversification.
- Investing without hassles
Unlike physical gold bullion, gold ETF investors stay free from finding a secure place to store gold bars, buying insurance, and transporting gold. An investor opens an account with a brokerage and, like stock buying, begins trading a gold ETF from the Singapore Exchange.
- Hedging against inflation
Gold has been a symbol of a hedge against inflation and crisis since the beginning. The recent war in Europe and the inflation crisis may prompt investors to invest more in gold for fear of currency devaluation and asset value protection. Therefore, gold prices tend to increase due to uncertain circumstances.
- Low expense ratio
Most passively-managed gold ETFs have a low expense ratio of below 1%, owing to their fund management nature. Investors benefit and increase their gains from reducing costs in buying gold ETFs.
- Liquidity
With advanced investing technology, e.g., online brokerages, investing is convenient and speedy when you can purchase a gold ETF from an exchange using a mobile or desktop application. A computer, tablet, or mobile phone is the standard tool for your investing.
Cons
- Fund expense ratio
Distinct from physical gold, an expense ratio is a fee you pay to run a gold ETF. Gold ETFs differ in expense ratios. Significant gaps in costs exist among gold ETFs. You should check before choosing your favorable option.
- Capital appreciation
Gold ETFs do not pay dividends or interests to investors like other commodities. Capital gains are the only way to profit from investing in commodity ETFs. You should look for other investments if a regular income stream is one of your requirements.
- Sense of possession
You must be disappointed with buying a gold ETF if you want to have a feel for the commodity’s smooth shininess and hardness quality. An exchange-traded fund is a legal structure commonly owned by shareholders. You should buy physical gold if you want to “feel” or like owning physical gold.
Where to Buy Gold ETFs
Listed shares on the Singapore Exchange, gold ETFs are tradable on the domestic stock exchange. You need a brokerage account to invest in the fund.
Surprisingly, the Singapore Exchange has hosted a gold ETF only: SPDR Gold Shares ETF(O87) since. SPDR Gold Shares is the largest gold ETF in net asset value worldwide.
It seems you do not have a choice in gold ETF. You have other options if you go beyond the local market. The New York Stock Exchange, the international financial exchange, is the world’s leading gold ETF trading center. You can find the largest funds by assets listed on the exchange, including iShare Gold Trust and Aberdeen Standard Gold ETF Trust, besides SPDR Gold Shares.
You can also invest in major exchanges like the London Stock Exchange or the Swiss Exchange for gold products. An account with an international brokerage gives you access to diverse gold ETF choices worldwide.
How to Buy Gold ETFs in Singapore
The exchange is the primary venue to buy and sell gold ETFs. Though it comes to fewer options in gold ETF investing in the Singapore stock exchange, you can look to many ETF options on other exchanges like NYSE, LSE, and the Swiss exchange.
Now it is easier than before to register an account with a brokerage. Below are the standard application procedures(application procedures differ among brokers, and you should review yours before applying)
- You provide personal particulars like the identity card, proof of residential address, employment details, and personal financial analysis, e.g., investment objectives, risk tolerance level, and time horizon. Or you can use your “Singpass” information to upload personal details to the brokerage to complete the process.
- Once a broker approves your application after verification, you have an account with details for investment.
- Fund your account according to requirements.
- You can begin to purchase gold ETFs.
The Singapore government encourages and allows citizens to use their CPF investment scheme for gold ETF buying
Investing in the government-sponsored retirement system offers tax advantages and increases returns due to tax relief. You should seek investment advice and details from a financial advisor before investing.
Two types of accounts under the investment scheme: 1. The Ordinary Account and the 2. Supplementary Retirement Scheme, are available to buy gold ETFs. A retirement advisor may help you determine the best option for your financial situation.
Investing through Robo Advisors
Advanced technology provides investors with one more option to invest. The Robo Advisor is an algorithm-driven digital platform making some investing functions like financial analysis, investment monitoring, asset allocation, rebalancing, and regular reviews.
Through a Robo Advisor, clients supply basic personal financial details, for example, investment goals, horizon, risk acceptance level, and investment budget, to the system and get a preliminary investment plan from the Robo for further review.
If an investor agrees with the investment proposal, a Robo Advisor will execute the investing duties as stated above. Robo investing streamlines basic procedures and relieves investors from routine work.
Investors should not expect a Robo to do all for them. Some sophisticated investment functions like complicated financial changes or requirements, especially psychologically, may necessitate a human advisor to get involved in the process to reach a final plan.
Clients should understand Robo Advisor can perform only preliminary duties at this stage, and using a Robo Advisor does not ensure investing success in the future.
Here is the list of main financial institutions using Robo Advisor services:
- AutoWealth
- DBS digiPortfolio
- EndowUs
- Kristal.AI
- OCBC RoboInvest
- Philip SMART Portfolio
- SaxoWealthCare
- SquirrelSave
- StashAway
- Syfe
The Best Gold ETFs of 2022
Investors should consider the 5 gold ETFs below because of their quality.
1. SPDR Gold Shares ETF(SGX: O87 and GLD; NYSE: GLD)
The ETF is the world’s largest gold ETF by asset value. SPDR is the only such fund available in Singapore. Investors can buy the fund shares in two currencies: USD for O87 & SGD for GLD. The ETF tracks gold prices in the US over-the-counter market.
The World Gold Trust Services, the worldwide gold council, sponsors the fund. You can buy the shares on the New York Stock Exchange and the Singapore Stock Exchange.
Asset Under Mangement: USD61 billion;
Expense ratio: 0.40%;
Inception date: November 18, 2004
2. iShares Gold Trust(NYSE: IAU)
Traded on the New York Stock Exchange, the fund is the second largest gold ETF after SPDR gold shares. The unit denomination is 1/100 of an ounce of gold. The ETF has 260 tonnes of gold backing up.
Asset Under Mangement: USD29 billion;
Expense ratio: 0.25%;
Inception date: January 21, 2005
3. Aberdeen ETF Standard Gold Trust(NYSE: SGOL)
Available on NYSE, the ETF stores the physical gold, verified by the London Bullion Association for international standards, in Switzerland. Aberdeen Investment Manager is the fund manager.
Asset Under Mangement: USD2.6 billion;
Expense ratio: 0.17%;
Inception date: September 9, 2009
4. Granite Shares Gold Trust(NYSE: BAR)
Offered on NYSE, the physical-gold ETF stores gold in London. Compared to other more considerable gold funds, Granite has a lower expense ratio than others.
Asset Under Mangement: USD996 million;
Expense ratio: 0.17%;
Inception date: August 23, 2017
5. iShares Gold Strategy(NYSE: IAUF)
Unlike other gold ETFs, the fund manager combines gold futures, swaps, forward contracts, and options with shares from iShares Gold Trust to seek higher returns in trading gold. Investors can buy the stocks on the NYSE.
Asset Under Mangement: USD41 million;
Expense ratio: 0.25%;
Inception date: June 6, 2018
Any Alternatives to Gold ETFs
Other than gold ETFs, you have 2 options investing in gold or its related business.
A gold savings account
If you prefer the excitement of buying or selling physical gold, you can open a gold savings account with the Union Overseas Bank(UOB) and trade with gold bullion in the gold market.
Listed gold mining stocks
Buying listed gold mining companies is another viable option. The gold demand correlates highly with the gold companies’ business. Research about the companies is crucial before putting money into one or more. Here are the gold mining companies listed on the Singapore Stock Exchange.
- CNMC Goldmine Holdings Limited(SGX: 5TP)
- Wilton Resources Corporation Limited(SGX: 5F7)
- Anchor Resources(SGX: 43E)
Final Thoughts
The Gold ETF is a viable investment complementing conventional gold investing. The exchange-traded fund offers flexibility and advantages other investment tools lack. It increases investors’ options in trading gold.
Key takeaways
- Gold ETFs are liquid and flexible investment tools.
- Investors may include them as part of their portfolio to diversify risks.
- Gold ETFs are low-cost investments without transportation, storage, insurance, and security costs.
- Investors cannot redeem gold ETF shares for physical gold.
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