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How to Buy Gold?

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SPDR Gold Shares

There is an Exchange Traded Fund for Gold which tracks the gold – SPDR Gold Shares. It is both available in NYSE (US) and SGX (Singapore). From the prospectus – “The investment objective of the Trust is for the Shares to reflect the performance of gold bullion, less the Trust’s expenses.” By buying gold collectively, they claimed that the expenses of carrying, storing, insuring the gold is lowered and can be passed on to the investors. You can now go through your usual broker to purchase gold shares throughout a trading day. Real gold bullion bars are purchased by the trust on behalf of the gold shares investors and are kept “in the form of allocated 400 oz. London Good Delivery Bars in the London vaults of HSBC Bank USA.” There were some claims that Gold ETFs may not possess the actual amount of gold to back the funds it holds. If it is true, in times of crisis, a shortage of gold may cause the fund to collapse and you not getting your money back.

  • Listed – SGX
  • Expense ratio – 0.40%
  • Minimum Order Size – 10 shares

Advantage:

  • Buy and sell as easy and convenient from the stock market

Disadvantage:

  • May not be backed by the actual amount of gold

Gold Futures

A method to buy gold that requires more sophisticated investment knowledge is futures. Futures is a form of derivatives and as all derivatives, they are complicated and if you do not understand or have not traded futures before, it is advisable to stay away. Those who engaged in gold futures are more speculative in nature as all futures have expiry dates, and usually traders have no intention to exercise the contracts and receive the delivery of the physical gold. They just want to profit from the change in price over the period of the contract. To buy gold futures, you would need to open a futures account with the local brokers. Futures accounts would require a higher capital outlay than a stock account as each contract size is as big as tens to hundreds of thousand dollars. They are highly leveraged which means your losses and profits are amplified.

Advantages:

  • Big transaction window (stay open longer than stock exchange)
  • Leverage

Disadvantages:

  • Requires more product knowledge
  • Leverage

Gold Mining Companies

Besides owning gold directly, you can consider buying shares of gold mining companies. You can look at companies like Barrick Gold (NYSE), Gold Corp (NYSE), and Newmont (NYSE). The risk is that the stock price may not go in tandem as gold price.

Advantage:

  • Easy to buy and sell in the stock market

Disadvantage:

  • May not have a direct correlation with the rise in gold price

Gold Jewelries

I guess most of us own a piece or two of gold jeweleries. But jeweleries are not considered good investment because the price that you paid includes design and fabrication cost, which are in addition to the gold material itself. These additional costs do not retain their value over time.

Advantage:

  • You have it already!

Disadvantage:

  • Design and fabrication costs included

13 thoughts on “How to Buy Gold?”

  1. Hi Alvin,

    I’m interested in investing in Gold due to the currrent fluctuating USD. I’m looking into the savings account for Gold. Now, i.e. if I’m putting 1k per month for 24 months, how much can I earn?

    As you can see, I’m quite clueless on how it works actually and I hope you can give me some insights on it.

    Thx in advance. =)

  2. Hi Jun, maybe you can try asking yourself some questions first:

    – what is your purpose of investing in gold?
    – what is your expectation?
    – why gold and not other asset classes?
    – what if you the gold investment does not turn out well or to your expectation, will you be financially ok?
    – when will you exit? either for loss or profit.

    Sometimes by asking yourself questions, you would be able to understand better and make a wiser decision.

  3. Hi Ruttger, it is possible if you are looking for a hedge against inflation. There should be more upside for silver than gold though. You must look at your overall portfolio, if you have no precious metal at the current moment, you may consider getting some gold.

    I am not offering you advice. I am just giving my opinion. If you are still unsure, pls consult a qualified financial planner to assist you.

  4. I was browsing for some gold information when I chance upon your site. Good information.

    On a personal note, how do you know it’s the right time to sell gold? Would love to hear your views on it. 🙂

  5. I would when US stop printing money and flooding the market with liquidity. Which would also mean the risk of high inflation is reduced. Then I would sell my silver.

  6. If you are a Singaporean, the best way to invest in gold is to invest in gold certificates. When you invest in gold certificates, you can lock in the price for XAU/SGD. That means the price of gold against SGD.

    Many times gold price rises but it benefits little to Singaporeans. Because our SGD is so strong. So when you see gold price rising in CNBC or Channel News Asia, that is gold price against USD. That does not necessary means that gold against SGD is rising.

    So if you want to invest in gold, look at XAU/SGD chart instead of the traditional gold chart.

  7. Alvin, I attended your session last night at the 11th investment mentoring session. It was a very good session and I particularly like the pp. Just wish to share my approach about US$ denominated investments. I normally keep US$ if I sell the asset. I would sell my gold ETF after US$ depreciates and buy back when it moves up. This is on condition that it has reach my target price and I am taking profit. Any comment?

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