Understanding gold funds and how to select the right one

During periods of severe inflation, gold has re-emerged as a key investment option for many investors due to its (Store of Value) properties that have been recognized since the past. There are various ways to invest in gold, from directly purchasing gold bars to investing through gold funds, which have gained increasing interest from investors because of their simplicity and convenience. However, choosing the appropriate gold fund involves complex considerations.

What is a gold fund: Understanding the pooled investment mechanism

Funds are mechanisms for pooling capital from individual investors with small amounts of money. The asset management company (Asset Management Company) (AMC) will invest the collected funds according to a predetermined policy. These policies may involve investing in indices, large-cap stocks, commodities, or classic assets like gold.

Gold funds are thus mutual funds that collect money from many investors to invest in gold according to a pre-set plan. They are passive funds that track the global gold price. Most gold funds in Thailand use the SPDR Gold Trust (ETF, the largest gold fund, as a benchmark, even if some funds invest directly in gold bars. As a result, the value of gold funds fluctuates with international gold prices.

Main factors investors should consider

) ◆ Exchange rates and risk hedging policies ◆

Since trading gold on the global market is conducted in US dollars, Thai gold funds must adjust their value to Thai baht based on daily exchange rate fluctuations.

When the baht weakens, the value of the gold fund converted to baht increases. Conversely, if the baht strengthens, the value decreases. This exchange rate volatility impacts investors’ gains or losses, in addition to changes in gold prices themselves.

Some funds implement risk hedging ###Hedge( to nearly mirror global gold prices, while others do not )Unhedge(, which can yield higher returns when the baht weakens but carry greater risk of loss if the baht strengthens.

Investors willing to accept higher risk may choose Unhedge funds to increase profit opportunities, while those seeking stability can opt for Hedge funds.

) ◆ Dividend payout policies ◆

Some gold funds have a policy of paying dividends periodically, meaning investors receive cash now, but long-term returns may decrease accordingly. For long-term profit accumulation, investors should choose non-dividend-distributing ###Accumulation( funds so that all profits remain reinvested.

) ◆ Trading venues and price announcements ◆

Some gold funds are traded on the New York Stock Exchange, others in Singapore. This difference affects the speed of price announcements.

The NY market has higher liquidity, but due to the time difference with Thailand, Thai investors may learn prices one day late ###T+1(. The Singapore market announces prices faster, though with slightly less liquidity.

Comparison of interesting gold funds in the market

★ TMBGOLD and TMBGOLDS ★

Both are gold funds from TMB, investing in SPDR Gold Trust. TMBGOLD is traded in New York as Unhedge, while TMBGOLDS is traded in Singapore as Hedge. The choice depends on the investor’s willingness to accept exchange rate risk.

★ TGoldBullion-H and TGoldBullion-UH ★

Gold funds from Thanachart Fund Eastspring that invest in physical gold )Physical gold(, meeting international standards )99.5% purity(. TGoldBullion-H hedges exchange rate risk at no less than 90%, while TGoldBullion-UH does not hedge.

★ SCBGOLD and SCBGOLDH ★

Gold funds from SCB Asset Management, traded in Singapore via SPDR Gold Trust. SCBGOLD has no risk hedging, while SCBGOLDH hedges at no less than 90%.

★ K-GOLD-A)A( and K-GOLD-A)D( ★

Gold funds from Kasikorn Asset Management, investing in SPDR Gold Trust. They hedge exchange rate risk at no less than 90%. K-GOLD-A)A( does not pay dividends, while K-GOLD-A)D( pays dividends up to 4 times per year.

Comparison: Gold funds versus gold futures contracts

Gold funds are suitable for medium- to long-term investors who prefer convenience and professional management, and do not have time to monitor gold prices constantly. The key advantage is that experts manage the money according to set policies.

However, there are limitations: investors can only buy or sell once per day at the end-of-day NAV, with management fees involved.

For short-term traders or day traders needing to capitalize on hourly price changes, gold funds are unsuitable due to lack of liquidity. They require faster tools like gold trading contracts )CFD(, which offer real-time prices and can reference global gold prices accurately and timely.

Summary and recommendations

Gold funds are a convenient, reliable option managed by professionals, suitable for investors seeking stability and long-term wealth accumulation.

However, selecting the right gold fund involves considering multiple factors, including risk hedging policies, dividend policies, and trading markets, as each impacts actual investment returns.

For more experienced traders, using gold funds may limit opportunities to profit from intra-day volatility. Therefore, gold CFDs might be a better alternative, offering greater flexibility and profit potential.