Why choose a "Gold Fund" and how to find the right one

When inflation rises, investors often look for safe places to store their money, and gold is the first choice because it is renowned as a primary store of value. There are many ways to invest in gold, but the most popular are buying gold bars directly and investing through gold mutual funds. Direct investment is straightforward, but choosing a mutual fund requires more detailed consideration because many factors affect our returns.

Gold Mutual Funds: Convenient Gold Trading

Gold funds or gold mutual funds pool investors’ money together and have a securities company manage (AMF) to invest in gold according to a predetermined plan.

The key method of operation for gold funds is that they are (Passive Funds) that track the global gold price movements. Most funds invest via SPDR Gold Trust, the largest ETF for gold bars. Some funds buy gold bars directly instead. Regardless of the method, the fund’s price will fluctuate in line with the global gold price.

Main Factors to Consider When Choosing a Gold Fund

When comparing several gold mutual funds, you’ll find that even if their investment policies are similar, their returns differ. Why is that? There are three main reasons:

###Exchange Rate Risk - The Major Decision

Gold prices in the global market are quoted in US dollars. When converted back to Baht, the exchange rate plays a role. If the Baht weakens, the fund’s price (in Baht) will rise; if the Baht strengthens, it will fall.

To avoid this risk, you should choose a fund that has (Hedging) to protect against exchange rate fluctuations, ensuring that returns move closely with the gold price without being affected by currency exchange.

Conversely, if you are willing to accept risk, selecting an (Unhedged) fund may yield better returns during periods when the Baht is weak and gold prices are high. When the Baht strengthens, losses could be greater than usual.

(Dividend Policy - An Overlooked Factor

Some funds pay dividends periodically, which results in cash outflows. This is why some funds appear to have lower returns compared to others, even if they have similar risk management policies.

Funds that do not pay dividends’ returns are not affected by this factor.

)Trading Venue - Impact on Liquidity

Some funds are traded on the New York Stock Exchange, while others are traded in Singapore. The difference lies in liquidity: NYSE has higher liquidity, but prices are announced with a 1-day delay ###T+1### due to time zone differences. Singapore markets have trading hours closer to Thailand’s.

Know the Real Gold Mutual Funds

TMBGOLD - The flagship gold fund investing in ETF SPDR Gold Trust traded in New York. It is (Unhedged), so its returns increase when the Baht weakens.

TMBGOLDS - A sister fund to TMBGOLD, traded in Singapore, but with (Hedge) to mitigate currency risk. Suitable for those who prefer not to worry about exchange rate fluctuations.

TGoldBullion-H - From Thanachart/Eastspring, invests directly in gold bars with over 90% hedging. Slight price changes may occur due to exchange rate movements.

TGoldBullion-UH - Similar to TGoldBullion-H but unhedged (Unhedged). Its price does not fully track gold bars because of currency effects.

SCBGOLD - From Siam Commercial Bank, invests in ETF SPDR Gold Trust traded in Singapore, unhedged (Unhedged).

SCBGOLDH - The hedged version of SCBGOLD, with over 90% hedging.

K-GOLD-A(A) - From Kasikornbank, invests in SPDR with 90% hedging, no dividends.

K-GOLD-A(D) - Similar to K-GOLD-A(A) but pays dividends up to 4 times a year.

Investing in Gold Funds vs. Trading Gold via CFD

Gold mutual funds are suitable for:

• Medium to long-term investors
• Those with limited time to monitor prices
• Want professional management of their funds
• Prefer not to open foreign accounts themselves

However, they can only be traded once a day at the NAV price at the end of the day, with management fees involved.

Gold CFD trading is more suitable for:

• Short-term traders
• Looking to capitalize on daily volatility
• Wanting flexibility and speed
• Prices are quoted in real-time based on global markets

Summary

Gold funds are a good and convenient option for gold investment, but success depends on choosing the right fund. At minimum, consider risk hedging, dividend policies, and trading venues.

For those with limited time and seeking peace of mind, gold mutual funds are a safe choice. Experienced traders aiming to maximize profit opportunities may find CFD gold trading a promising alternative with greater potential.