Choose Gold Funds Wisely: A Complete Guide for Investors

Why Gold Funds Should Be in Your Portfolio

As gold prices rise, many investors are seeking safe and stable assets. Gold has long served as a store of value(Store of Value) for a reason. There are various ways to invest in gold, from purchasing physical gold bars to investing through gold funds, which offer a convenient, secure, and worry-free way to hold gold without concerns about storage.

Gold Funds: The Basics You Need to Know

Gold mutual funds are investment vehicles created by pooling money from multiple investors. Asset management companies (AMCs) will invest this pooled money in gold according to pre-set policies. Most of these funds invest in units of the SPDR Gold Trust, the world’s largest gold-focused ETF, which primarily invests in physical gold bars. Some funds choose to invest directly in gold bars.

Since these are passive funds, they tend to mirror the performance of gold prices on the global market. This means that the fund’s value is directly affected by fluctuations in gold prices, and exchange rate risk between the Thai Baht and the US dollar also impacts performance. When the Baht weakens, the fund’s value increases; when it strengthens, the value decreases.

Criteria for Selecting Gold Funds to Consider

When choosing a gold fund, investors should consider several key factors rather than relying solely on others’ opinions.

Currency Hedging: Hedge vs. Unhedged

This is the most influential factor on performance. Gold prices are quoted in US dollars globally, so when converting back to Thai Baht, the exchange rate plays a crucial role.

Unhedged (funds) provide good returns when the Baht weakens but can incur significant losses if the Baht appreciates. This option is suitable for investors who accept risk and believe the Baht will continue to weaken.

Hedged (funds) use forward contracts to reduce the impact of exchange rate fluctuations. They are ideal for investors seeking returns closely aligned with global gold prices.

Dividend Policy

Some funds pay dividends periodically, which can reduce long-term total returns but provide immediate cash flow. Funds that do not pay dividends tend to offer better overall returns.

Trading Venue and Liquidity

The New York Stock Exchange (NYSE) has higher liquidity than the Singapore market. However, time zone differences mean that investors in NY-based funds receive prices about a day later. This factor does not significantly affect long-term returns.

Comparison of Leading Gold Funds in Thailand

TMBGOLD and TMBGOLDS

Both are from TMB. TMBGOLD invests via the New York market without currency hedging, while TMBGOLDS trades in Singapore and offers at least 90% currency hedging.

TGoldBullion-H and TGoldBullion-UH

From Thanachart Fund Eastspring, both invest in internationally standardized physical gold (with purity not less than 99.5%). TGoldBullion-H has at least 90% hedging, whereas TGoldBullion-UH does not.

SCBGOLD and SCBGOLDH

From SCB Asset Management, both invest in units of SPDR Gold Trust via Singapore. SCBGOLD has no hedging, while SCBGOLDH offers at least 90% hedging.

K-GOLD-A(A) and K-GOLD-A(D)

From Kasikornbank, both have at least 90% hedging. K-GOLD-A(A) does not pay dividends, while K-GOLD-A(D) pays dividends up to four times a year.

Gold Funds vs. Gold CFDs: Which One to Choose?

Gold Funds are suitable for medium- to long-term investment, with the advantage of professional management. However, they can only be traded once per day at the NAV price at the end of the day and involve management fees.

Gold CFDs are derivative contracts offering higher flexibility. They are ideal for those who want to track gold price fluctuations in real-time and require fast trading execution. CFDs are suitable for short-term traders and those seeking operational flexibility.

Summary

Gold funds have intrinsic value, but choosing the right one depends on whether you want to hedge currency risk, receive dividends, or monitor trading actively. For long-term investors, gold funds are a convenient option. For more experienced investors who want independence in trading, gold CFDs are also a compelling tool.