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
- Buy and sell as easy and convenient from the stock market
- May not be backed by the actual amount of gold
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.
- Big transaction window (stay open longer than stock exchange)
- Requires more product knowledge
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.
- Easy to buy and sell in the stock market
- May not have a direct correlation with the rise in gold price
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.
- You have it already!
- Design and fabrication costs included
Co-Founder. Believer of the Factor-based Investing approach. Running a Multi-Factor Portfolio that taps on the Value, Size, Profitability and Momentum Factors. Quant at heart. Believe the financial industry can treat their customers better. Wants to change the world.