Gold Insights

Find the Right Gold for Your Portfolio

Investors have several options to consider when looking to gain exposure to gold and tap into its diverse potential benefits. Understanding the potential advantages and considerations for the different gold investment vehicles — be they ETFs, managed funds, gold bars and coins, or gold mining stocks — can help an investor to determine which option is best suited to their personal investment situation.

24 July 2024

Clive Maguchu, CFA

Senior Strategist

Robin Tsui, CPA, CAIA, CA

APAC Gold Strategist

Gold Bars and Coins remain the most popular way that global investors access gold. But that habit may be shifting — especially in recent years as gold-backed ETFs have seen record global inflows. Although directly holding bars and coins has a high level of transparency with physical possession, investors are often required to pay a premium over the spot price of gold for their purchase. Cost and liquidity considerations also come into play when holding bars and coins outright — including costs for insurance, transportation and safekeeping, each of which can impact the underlying performance benefits realised.

Gold-backed ETFs offer investors gold exposure through the many benefits of passive ETF investing, including the access and transparency of intraday trading on national exchanges and lower average expense ratios than those of many of the other options. But it’s important for investors to note that not all gold ETFs are created equal — nor do they all invest exclusively in gold bullion — and investors should carefully review the holdings to determine how much of the ETF’s portfolio is invested in physical gold. This is especially true when comparing gold mining ETFs and gold managed funds that invest only a small portion of their assets in gold. Physically backed gold ETFs provide a cost-effective way to access gold bullion through a historically low-transaction-cost vehicle with low bid-ask spreads and low tracking error to the market price of gold. ETFs may also provide deep liquidity and access to the market to rebalance and position exposures.

Gold Managed Funds provide investors with the same daily liquidity as gold ETFs do, but they do not trade intraday on national exchanges, as do ETFs. And many managed funds that hold gold in their portfolio of investments may not exclusively invest in gold, which means they may not track gold’s price movements and reap the full value of gold’s diverse potential benefits. As with ETFs, investors need to filter for managed funds that invest exclusively in gold bullion. Another aspect for investors to be mindful of is that managed funds have a wide range of expense ratios so these need to be compared aga inst ETFs to achieve a lower fee drag. Depending on the size of the allocation, this option may provide investors with more flexibility than ETFs.

Gold Mining Stocks and ETFs are another way that investors can gain exposure to gold. But investing in these companies is not the same as directly investing in gold bullion or a gold-backed ETF. These represent investments ingold miningcompanies and operations, and these companies maybe impacted by certain additional factors beyond the price of gold — such as profitability, industry competition, and other financial and operational decisions.

Gold Futures are often used by larger or institutional investors looking to leverage their portfolios. Gold futures provide intraday trading and a way to manage underlying risks of other securities held in their portfolio. Gold futures require unique knowledge about the gold market and are not typically the vehicle of choice for the average investor. Also, gold futures contracts are not physically backed by gold, and they do carry defined expiration dates, which require holders to roll over the contract according to a scheduled expiry to maintain their gold exposure. Although gold futures are generally traded in larger positions with lower brokerage commissions due to their size, the associated brokerage and roll costs need to be considered when determining the total cost of ownership over the medium and longer term.

Read the full whitepaper: Gold For Australian Investors: A Portfolio Diversifier With Staying Power.

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Disclosure

State Street Global Advisors, Australia, Limited (AFSL Number 238276, ABN 42 003 914 225) (“SSGA Australia”). Registered office: Level 14, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240-7600. Web: ssga.com.

The views expressed in this commentary are the views of Clive Maguchu and Robin Tsui through the period ended 14 June 2024 and are subject to change based on market and other conditions.

This document may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events or developments that SSGA expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by SSGA in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances, many of which are detailed herein. Such statements are subject to a number of assumptions, risks, uncertainties, many of which are beyond SSGA’s control. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss. Investing in commodities entail significant risk and is not appropriate for all investors. Commodities investing entail significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.

Past performance is not a reliable indicator of future performance.

Assets may be considered “safe havens” based on investor perception that an asset’s value will hold steady or climb even as the value of other investments drops during times of economic stress. Perceived safe-haven assets are not guaranteed to maintain value at any time.

The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.

This material is general information only and does not take into account your individual objectives, financial situation or needs and you should consider whether it is appropriate for you. There is no representation or warranty as to the current accuracy of this material, and SSGA Australia shall have no liability for decisions based on such information.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA Australia’s express written consent.

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