Gold price surges to record high. Which is the best gold ETF?

By Beansprout • 04 Dec 2023 • 0 min read

Gold price reached a record high of above US$2,100 per ounce. We find out which is the best Gold ETF for investors in Singapore.

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Gold price just reached a record high.

On 4 December, the price of gold reached $2,110.8 per ounce (oz). This would exceed the levels reached during the Covid-19 pandemic, the Ukraine crisis, as well as following the collapse of Silicon Valley bank.

gold price record high december 2023
Source: Tradingview

 

The sharp increase in gold price was driven by a flight to safety following an escalation of tension in the Middle East. 

In addition, the weaker US dollar and expectations of potential interest rate cuts by the Federal Reserve have also led to a higher gold price.

With the bounce in gold price, many of you might be wondering how we can gain exposure to gold through a gold ETF.

Let's take a look at whether Singapore gold ETFs are a good way to gain exposure to gold, and if they might be a better option compared to physical gold. 

What are Singapore gold ETFs?

A gold ETF tracks the value of physical gold and can be purchased and sold on stock exchanges, allowing you to participate in the gold market without the need to physically own gold. 

The underlying asset of a Singapore gold ETF is the gold bullion. This means that investing in gold ETFs in Singapore can provide similar benefits to investing in physical gold.

Overall, investing in gold ETFs in Singapore is much more accessible, with lower barriers to entry, compared to physical gold investment, while still providing the advantages of investing in gold.

What are the advantages of Gold ETFs?

#1- Smaller investment size 

Investing in physical gold may require a significant capital investment, especially with gold priced above US$1,900 per ounce (oz) as of 15 March 2023.

Singapore gold ETFs provide a way to gain exposure to the gold market without having to commit a large amount of capital.

The SPDR Gold ETF in Singapore is trading at US$175.4 per unit as of 15 March 2023. With a minimum purchase size of 1 lot, you can gain access to gold with about S$240 of capital.

#2 - Gold ETFs may offer more convenience 

Investing in physical gold requires secure storage, which can be potentially expensive. You would also probably not want to be leaving the gold under your pillow! 

Some may choose to purchase insurance policies to have a greater peace of mind, but this would potentially raise your investment costs. 

On the other hand, Singapore Gold ETFs are traded on the SGX and can be bought and sold like stocks. As a result, you will be able to gain exposure to gold with greater convenience. 

What are the disadvantages of Gold ETFs?

#1 - Gold ETFs may not track the price of gold perfectly

There are expenses relating to managing the gold ETF, which may erode the returns generated from investing in the fund over the long term. 

The price of the Gold ETF may also not track the price of gold perfectly, depending on the liquidity of the gold ETF and market conditions. 

#2 - Risks relating to ETFs

An ETF may be shut down in the event of financial difficulties faced by its sponsor.  Hence, we need to check that the Gold ETFs are adequately funded and have a proven track record. 

Also, not all Gold ETFs only track the price of gold. Some may include shares in gold-related companies, like gold mining firms. This presents a different set of risks compared to just owning physical gold. 

Are Gold ETFs a good volatility hedge?

Gold has been considered a good hedge against volatility historically. However, its effectiveness  may vary depending on the market environment.

For example, gold has often been seen as a safe-haven asset that investors can turn to during times of increased volatility, such as during economic uncertainty or geopolitical crises. 

This is because gold is a physical asset that is not tied to the performance of any specific company or economic. This makes it valuable as a tool for diversification. 

It might be important to note that all investments carry risks, and gold may not be a perfect hedge for volatility. This is because its performance may be affected by various factors such as foreign currency rates, as well as changes in demand and supply. 

What is the SPDR Gold Shares? 

Currently, there is only one Singapore gold ETF, which is SPDR Gold Shares. The SPDR Gold Shares can be easily bought and sold on the Singapore Stock Exchange (SGX) just like stocks.

The SPDR Gold Shares offers the flexibility of both Singapore dollar (GSD.SI) and US Dollar (O87.SI) trading options.

SPDR Gold Shares has an annual total expense ratio of only 0.40%, making it is a cost-effective solution for those looking to gain exposure in the gold market. 

Did you know? The SPDR Gold Shares was one of the top 5 ETFs bought by CPF SRS investors last year!

You can find out more about SPDR Gold Shares here.

What are the Gold ETFs listed outside of Singapore?

If you are looking at Gold ETFs looking outside of Singapore, there are a few additional options to consider.

The iShares Gold Trust (IAU) is backed by physical gold held in a secure vault, is listed in the US, and has an expense ratio of just 0.25%.

The VanEck Gold Miners ETF (GDX) provides investors with exposure to gold mining companies, and is listed in the US. 

The VanEck Junior Gold Miners ETF (GDXJ) provides investors with exposure to small cap companies involved in gold mining. 

Explore more about these Gold ETFs using Beansprout's ETF tool. 

What is the difference between the SPDR Gold Shares and other Gold ETFs?

Both the SPDR Gold Shares and iShares Gold Trust (IAU) are backed by physical gold, which may provide investors with a greater peace of mind. 

The SPDR Gold Shares is the only gold ETF that is listed in Singapore. It is also an investment option that is included under the CPF Investment Scheme, subject to investment limits. 

Amongst the four gold ETFs listed below, the iShares Gold Trust (IAU) has the lowest expense ratio at just 0.25%. 

The VanEck Gold Miners ETF (GDX) and VanEck Junior Gold Miners ETF (GDXJ) offer exposure to gold mining companies rather than physical gold, and the value of these companies may be more volatile and fluctuate according on equity market conditions. 

Junior miners may offer investors higher potential returns than larger, more established gold mining companies, but also come with higher risks.

The VanEck Gold Miners ETF (GDX) and VanEck Junior Gold Miners ETF (GDXJ) have a lightly higher expense ratio compared to the SPDR Gold Shares and iShares Gold Trust (IAU).

 TickerExchangeExposureExpense ratio
SPDR Gold Trust O87SingaporePhysical gold0.40%
iShares Gold TrustIAUUSPhysical gold0.25%
VanEck Gold Miners ETFGDXUSGold mining companies0.51%
VanEck Junior Gold Miners ETFGDXJUSSmall-cap gold mining companies0.52%

How to buy Gold ETFs in Singapore?

The SPDR Gold Shares is traded on the SGX, and can be purchased through a brokerage account just like trading in stocks.

To purchase a US-listed ETF, you will need a brokerage account that allows you to trade US stocks. 

Check out our comparison of best brokerage account to trade US and Singapore stocks.

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