Gold and Gold Funds: A Guide to Investment Options You Need to Know

When the economy shows signs of change, investors often look for hedging tools that have been trusted since ancient times. Gold has become a popular choice, and when it comes to investing in gold, gold funds are considered a highly popular method.

Why Understand Gold Funds

There are many ways to invest in gold, from buying bars to store yourself, to investing through gold funds. For most people who do not want to deal with storage and insurance of gold bars, investing via gold funds offers a more convenient solution.

Gold Funds are mutual funds that pool money from many investors and have a securities company manage the investments in gold, with a clear investment policy from the start, relieving investors from managing it themselves.

How to Choose the Right Gold Fund

Most gold funds in Thailand share the same goal: investing in gold. However, the details may differ, and these differences can significantly impact your returns.

First point: Currency risk hedging

Global gold prices are quoted in US dollars. When converted to Thai Baht, exchange rates must be considered. This is a key factor that divides gold funds into two types:

Unhedged Gold Funds (Unhedge): If the Baht weakens, the fund’s price can rise more than gold prices alone. This is advantageous if you expect the Baht to weaken. However, if the Baht strengthens, returns will decrease. Investors comfortable with volatility often choose this.

Hedged Gold Funds (Hedge): Use forward contracts to ensure returns track the global gold price accurately, regardless of whether the Baht is strong or weak. Those seeking more stable results usually prefer this.

Second point: Dividend policy

Some gold funds pay out cash dividends, which reduces long-term returns but provides immediate cash in hand. This depends on whether you prefer income streams or capital appreciation.

Third point: Market exchanges used for trading

Some gold funds trade on the New York market, others on Singapore. The main differences are liquidity and price announcement timing. New York offers higher liquidity but slower price announcements, while Singapore provides prices closer to real-time.

In-depth comparison: Direct investment vs. SPDR Gold Trust

Many ask whether investing in gold funds that directly invest in gold bars differs from investing through SPDR Gold Trust (GLD).

Historical data shows that returns are similar. The real difference lies in currency management policies. Unhedged funds (Unhedge) tend to perform very well when the Baht weakens, while hedged funds (Hedge) offer more consistent results.

Considerations for gold fund options

From TMB Asset Management

TMBGOLD invests in SPDR Gold Trust via the New York market, without currency risk hedging. Suitable for those expecting the Baht to weaken.

TMBGOLDS also invests in SPDR Gold Trust but through the Singapore market, with currency risk hedging. Suitable for those seeking stability.

From Thanachart Bank-Espring

TGoldBullion-H invests directly in gold bars with purity standards of 99.5% or higher, with at least 90% hedging.

TGoldBullion-UH invests similarly but without hedging, suitable for risk-tolerant investors.

From Siam Commercial Bank

SCBGOLD invests in SPDR Gold Trust via Singapore, without hedging.

SCBGOLDH is similar but with at least 90% hedging.

From Kasikornbank

K-GOLD-A(A) invests in SPDR Gold Trust with at least 90% hedging, no dividends paid, ideal for those aiming for growth from purchase to maturity.

K-GOLD-A(D) has the same policy but pays dividends up to 4 times per year.

Who is suitable or not suitable for gold funds

( Suitable for

Those with medium to long-term investment horizons )1-5 years or more###, and who do not have time to monitor gold prices daily. Those who prefer professional management and want to avoid the hassle of storing physical gold.

( Not suitable for

Short-term traders, especially day traders who buy and sell multiple times per day, because gold funds can only be bought once per day at the NAV price at the end of the day, with management fees.

For such traders, gold trading contracts )CFD### might be a better option, offering high leverage, real-time market tracking, and the ability to open and close positions as desired.

Advantages and limitations of investing through gold funds

Advantages:

• No need to store gold yourself
• Managed by experts
• Can choose policies suited to your situation
• Transparent pricing, tracking global gold prices

Limitations:

• Only tradable once per day
• Management fees apply
• Not suitable for short-term trading
• Requires opening an account with a securities company

Summary

Gold funds are a reasonable choice for medium- to long-term investors seeking passive income or incremental value growth from gold. The key is understanding the differences between each fund, especially regarding currency risk hedging, to make informed decisions.

Meanwhile, experienced traders seeking more flexibility might consider gold CFDs as an alternative. Whatever your choice, ensure it aligns with your goals and circumstances.