How does gold serve as an investment tool? A guide to choosing gold funds for investors

During times of economic uncertainty, many investors seek assets with high safety. Gold has become a popular choice to preserve capital value. In addition to directly purchasing gold bars, investing through Gold Funds is a convenient and hassle-free way to access this asset class.

How Do Gold Funds Work and What Are Their Special Features?

Gold Funds are mechanisms managed by securities companies (asset management companies) that pool money from multiple investors and then invest in gold according to set policies. The term “Passive Fund” means that gold funds’ performance follows the global gold price without active management like other funds.

To ensure price tracking aligns with international standards, most funds use SPDR Gold Trust as a reference, which is a large ETF focusing on physical gold investment. Some funds also purchase gold bars directly abroad, causing the fund’s value to fluctuate with global gold price movements.

Key Factors in Selecting Suitable Gold Funds

While most Gold Funds in Thailand have similar gold investment policies, their management details differ. The key characteristics to observe include:

Exchange rate risk as a factor influencing returns

Gold trading in the global market is conducted in US dollars. When converted to Thai Baht, exchange rates must be considered. When the Baht appreciates, your fund’s value may decrease; when it depreciates, benefits increase.

Funds that adopt Hedge (to mitigate risk) policies will provide more stable returns aligned with global gold prices. Conversely, Unhedge (not hedging) funds do not mitigate risk and may yield higher benefits when the Baht weakens but could also incur greater losses if the opposite occurs.

Dividend payout policies affect long-term benefits

Some funds pay dividends multiple times a year, which reduces long-term growth potential. While investors receive cash, this approach is more suitable for those seeking current income. Funds without dividend policies are better suited for long-term investment.

Market trading hours impact transaction convenience

Funds trade on foreign stock exchanges such as New York, Singapore, or Japan, which are in different time zones from Thailand. The Singapore stock exchange provides faster price announcements, while New York may be slower. This can lead to differences in price information perceived by investors.

Examples of Gold Funds Available in Thailand

TMBGOLD managed by TMB focuses on investing via SPDR Gold Trust on the New York Stock Exchange. It does not hedge against exchange rate risk, suitable for investors willing to accept higher risk.

TMBGOLDS from the same provider is registered and traded on the Singapore market, with exchange rate risk hedged. Suitable for those seeking stability.

TGoldBullion-H from Thanachart Fund Eastspring invests directly in gold bars with purity not less than 99.5% and hedges at least 90% of exchange rate risk.

TGoldBullion-UH from the same provider does not hedge, suitable for those expecting the Baht to weaken.

SCBGOLD from Siam Commercial Bank invests via SPDR Gold Trust on the Singapore exchange, with no hedging.

SCBGOLDH from the same provider hedges at least 90%.

K-GOLD-A(A) from Kasikornbank invests in SPDR Gold Trust with hedging and no dividend payout.

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

Comparison: Gold Funds vs. Gold Futures Contracts

Gold Funds have the advantage of professional management, no need to monitor prices constantly, and are suitable for medium- to long-term investment. However, they can only be traded once per day at the NAV price at the end of the day and involve management fees.

For short-term traders looking to capitalize on daily price volatility, Gold Funds may lack flexibility. They might prefer other tools such as gold futures contracts (CFD), which allow multiple trades per day with real-time prices.

Summary

Investing in Gold Funds is a convenient, safe option managed by professionals. However, investors should choose based on their own characteristics, such as risk tolerance, investment horizon, and current income needs. Understanding these factors before selecting the appropriate Gold Fund can help achieve investment goals more effectively.