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For centuries, gold has been synonymous with wealth and security. In more recent decades, though, gold has become a key portfolio diversification tool – underlining its role as a safe-haven asset.
Today, gold remains very much in the spotlight. The global economic landscape is riddled with uncertainties, including armed conflicts, a reignition of US-China trade tensions, increasingly inward-looking economies, and more. All this has also led to rising cost-of-living for the man on the street.
It can give investors peace of mind to learn that investing in gold can protect against market volatility and keep pace with inflation.
Over the long-term, gold has delivered an average return of 8% per annum since 1971 – beating out both the US Consumer Price Index (CPI) and M2 Money Supply (a measure of how much money there is in the system).
Source: SSGA
For those who wish to enjoy these benefits of gaining exposure to gold, we look at 4 common ways for investors in Singapore to invest in gold.
#1 Physical Gold
For a long time, gold investments were made through tangible ownership – where investors can physically see and touch their gold coins and bars. While some may play up the relevance of jewellery, which can be worn and enjoyed while gold price appreciates, there is simply far too much cost involved.
This conservative approach values the yellow metal most as a reliable store of value, as well as having the ability to carry the physical gold along with them. Having physical gold also allows the owners to pass down a tangible asset to family members.
While buying physical gold bars and coins are still the most popular way to invest in gold, we are often required to pay a premium over the spot price of gold, which may include a non-transparent commission. This premium can also widen if we are buying smaller quantities of gold.
When we buy or sell gold bars and coins, it can also be cumbersome to always have to travel to the shop, and spend extra time and incur transportation costs. Moreover, holding on to physical gold may invite security concerns. We may have to buy a safe as well as insurance for the gold that we keep.
#2 Gold Mutual Funds/Unit Trust
Demonstrating a low and even negative correlation to many financial assets during periods of large market downturns, systemic risk and geopolitical volatility, more people have become increasingly open to owning “paper gold” as a form of portfolio diversification tool.
Source: SSGA
Besides safeguarding against portfolio volatility, paper gold allows for more granular investments and offers daily liquidity (but not intraday liquidity). No longer do investors need to travel to a shop just to buy gold or are restricted to buy in quantities that gold coins and bars come in.
For this benefit, however, owning paper gold usually comes with an annual expense ratio – which is typically higher compared to gold ETFs, which we will discuss next.
Some gold funds may also not have full exposure to physical gold, and may include some form of derivative component – and that’s why we need to do research before investing.
#3 Gold ETFs
As investors have become increasingly self-directed and comfortable with making investments over their stock brokerage platforms, gold ETFs are now a popular way for investors to gain the same diversification benefits for their portfolio.
As another form of “paper gold”, gold ETFs offer many of the same advantages to buying and owning gold mutual funds or unit trusts. Unlike gold funds, though, gold ETFs offer superior liquidity and pricing transparency. Listed on stock exchanges, gold ETF provide access to intraday trading, as well as full pricing transparency.
This is an important feature for younger investors who are also more comfortable taking a shorter-term or even speculative approach to gaining exposure to gold.
Since gold ETFs can be bought and stored with the same brokerage platform as our stock and retail bond portfolio, we can also monitor our combined investment portfolio more closely and conveniently.
As mentioned, we have to pay an expense ratio when holding gold ETFs – but this is typically lower than gold mutual funds and unit trusts. Often, ETFs with larger asset under management (AUM) can also afford to a charge lower expense ratio.
For example, the SPDR® Gold Shares ETF, the largest gold ETF in the world, with over US$83 billion in AUM, and also the first US-listed ETF backed by a physical asset when it was listed in November 2004, charges an expense ratio of 0.4%. Better still, it is also cross-listed on the Singapore Exchange (SGX) – which means we can buy the same globally-acclaimed gold ETF in US Dollars or Singapore Dollars.
#4 Gold Futures & Gold Contract for Difference (CFDs)
Those who prefer speculative exposure to gold prices may prefer to trade gold futures or even gold CFDs instead.
While investors continue to gain exposure to the returns of gold, they do not hold any underlying exposure to gold bullion – which means this is purely a derivative product.
Gold derivatives are primarily meant for shorter-term exposure rather than long-term, using it as a trading tool to magnify their exposure and profit from price fluctuations. One benefit for shorter-term traders is their ability to gain both long and short exposure to gold prices, depending on their trading view.
As a complex trading tool, gold futures or CFDs are not meant for the man on the street investor, but rather more experienced institutional investors or traders. Traders should also be knowledgeable on costs and trading strategies before buying them, as gold futures come with expiry dates, while holding gold CFDs may incur financing fees.
Investing In Gold: Why ETFs May Be The Gold Standard
While the path to enjoying gold’s prosperity can come in various forms, we need to look out for a few things before we invest.
Cost is one big factor to how much of the returns from our gold investment we get to keep. The higher the cost we incur, the lower the returns we get to keep.
When we invest in physical gold, the price may not be so transparent every time and can also change based on the quantities that we buy or sell. When we invest in paper gold, such as the SPDR® Gold Shares ETF, we typically pay a transparent price determined by the market. Obviously, this price does not change based on the quantity that we choose to buy or sell.
Liquidity is another factor. Buying physical gold provides the poorest liquidity, and we need to take the time and effort to travel each time we want to buy or sell gold. Worst still, buying physical gold means we also have storage and security concerns after that.
Paper gold provides a high degree of liquidity and can be bought and sold from the comfort of our home. But, even among different types of paper gold, liquidity may differ. For instance, buying and selling gold mutual funds and unit trust provides daily liquidity, while buying the SPDR® Gold Shares ETF offers intraday liquidity.
Our purpose will also dictate how we should buy gold. If we wish to hand tangible assets to the next generation, then physical gold (or even jewellery) may be the preferred choice. If our wish is to instead beat the market in the short-term, we can choose to trade gold futures or gold CFDs.
However, if our purpose is to hedge against inflation or protect our portfolio against market volatility in the long term, then buying paper gold, such as the SPDR® Gold Shares ETF, may be the more suitable investment.
Important Disclosure
Sponsored by State Street Global Advisors Singapore Limited (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell an investment. It does not take into account any investor’s particular investment objectives or investment horizon. The prospectus in respect of the Singapore offer of the SPDR® Gold Shares (the ‘Shares’) is available at https://www.spdrgoldshares.com/singapore/. The value of Shares may fall or rise. Investors should read the prospectus before deciding whether to purchase Shares. Shares in the Trust are not obligations of, deposits in, or guaranteed by, World Gold Trust Services, LLC, SSGA or any of their affiliates. You may wish to seek advice from a financial adviser before making a commitment to purchase Shares. In the event that you choose not to seek advice from a financial adviser, you should consider whether the Trust is suitable for you. Investors have no right to request the Sponsor to redeem their Shares while the Shares are listed. It is intended that holders of Shares may only deal in their Shares through trading on the SGX-ST. Listing of the Shares on the SGX-ST does not guarantee a liquid market for the Shares.
For more risk and additional information, please visit https://www.ssga.com/sg/en/individual/capabilities/alternatives/gold
Diversification does not ensure a profit or guarantee against loss.
Past performance is not necessarily indicative of the future performance.
Assets may be considered “safe havens” based on investor perception that an asset’s value will hold steady or climb even as the value of other investments drops during times of economic stress. Perceived safe-haven assets are not guaranteed to maintain value at any time.
There are risks associated with investing in Real Assets and the Real Assets sector, including real estate, precious metals and natural resources. Investments can be significantly affected by events relating to these industries.
ETFs trade like stocks, are subject to investment risk and will fluctuate in market value. Changes in exchange rates may have an adverse effect on the value, price, or income of an investment. Further there is no guarantee an ETF will achieve its investment objective.
Brokerage commissions and ETF expenses will reduce returns. Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities. Currency exchange rates between the U.S. dollar and non-U.S. currencies may fluctuate significantly over short periods of time and may cause the value of investment to decline. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. Investing in commodities entails significant risk and is not appropriate for all investors. Commodities investing entails significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.
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Exp. Date: 31/01/2026
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