What are the different ways to invest in gold?

1. Purchasing physical gold
The most common way to invest in physical gold is to purchase gold bullion. Gold bullion refers to investment-grade gold, commonly in the form of bars, ingots, or coins.

Investment-grade gold is always at least 99.5 per cent pure:

Gold bars will have the manufacturer’s name, weight, and purity stamped on it. Gold bars typically range from 1/10 troy ounce (one troy ounce = 31.1 grams) to one kilogram.
Gold coins come in a wider range of shapes and sizes. However, do note that you may be paying extra for design elements, such as engravings or collector value. Some coins are also accepted as legal tender in their country of origin, such as UK gold sovereigns, but they are rarely convenient to use as actual currency.
Physical gold can be purchased from some banks or brokers. Always ensure you purchase gold from reputable sellers only. It is generally best to purchase gold bullion from trusted local sources, rather than online. It’s also advantageous to purchase gold in Singapore, as it is an Investment Precious Metal (IPM), and thus exempt from Goods & Services Tax (GST).

2. Gold as a Commodity-Linked Structured Investment
Coined Wall Street’s safe haven asset, gold is able to store its value in real terms amidst volatile Another way to invest in gold is to use gold currency investments. An example of this is to buy gold as a Commodity-Linked Structured Investment. Using this method, you decide with the bank or broker on the duration of the investment and a base currency – such as USD, SGD, and so on. You will need to agree on a Target Conversion Rate (TCR) to be applied between gold and the base currency. Gold is treated like a currency with a currency code of XAU.

At the end of the investment duration, you will get both principal and coupon in either gold (XAU) or the base currency. If gold (XAU) appreciates against the base currency -for instance, USD –you will be repaid in USD for both the principal and coupon. However, if gold (XAU) falls below the TCR, the investment will get converted and you will be repaid the equivalent of principal and coupon in gold (XAU) converted at TCR.

3. Investing in gold ETFs or gold unit trusts
A gold Exchange Traded Fund (ETF) allows you to invest in gold, without having to buy the physical gold assets. It is a fund that holds a range of different gold-backed assets. Some gold ETFs simply track or mimic the price movements of physical gold, whereas others may include shares in gold miners, or various gold-backed derivatives. The underlying asset is what dictates the value of the ETF and will therefore be the determining factor for its performance.

Gold ETFs can be traded like stocks, making them liquid and easy to sell off as and when required. They are also oftentimes cheaper to own for new investors, as you do not have to purchase actual gold, albeit you should check with a qualified broker for the spot price. This allows you to include gold in your portfolio, with a smaller commitment of capital.

A gold unit trust (UT) is also a fund, which consists of gold-related assets and derivatives. Similar to gold ETFs, some gold UT invest directly in physical gold, while some gold-related UTs invest in stocks of gold miners, other precious metals and bulk commodities. The main difference is that the unit trust is more actively managed; there are managers who handle the buying and selling of gold-related assets or derivatives in the fund. Ideally, the full-time professionals running the fund will be able to get better returns than an ETF, which simply mirrors gold price movements.


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