Gold is back! Gold Bullion vs CFD: Which one should you choose

During periods of high inflation, investors tend to turn their attention to gold. However, not everyone wants to buy gold bars to store at home. A more popular method is investing in Gold Mutual Funds or what some call Gold Funds—investment tools suitable for those seeking returns from gold without the hassle of storage.

What exactly is a Gold Fund?

Simply put, a Gold Mutual Fund is managed by a securities company that pools investors’ money to buy gold bars or invest in ETF funds that track the global gold price.

Most gold funds in Thailand use the price standard from the SPDR Gold Trust, a large ETF directly registered to invest in physical gold. Some funds choose to buy gold bars directly, but the end results are usually quite similar.

5 Gold Funds to Watch Right Now

The Thai market offers several gold fund options, but the main ones attracting attention include:

TMBGOLD and TMBGOLDS – Both are gold funds from TMB that invest in units of SPDR Gold Trust. The difference is that TMBGOLD is unhedged, meaning it does not hedge against the baht exchange rate (Unhedge), while TMBGOLDS is hedged (Hedge), which affects their returns.

TGoldBullion-H and TGoldBullion-UH – Gold funds from Thanachart that invest in physical gold bars with a purity standard of at least 99.5%. The first is hedged, the second is unhedged.

SCBGOLD and SCBGOLDH – Gold funds from SCB Asset Management, investing via SPDR Gold Trust listed on the Singapore Exchange. SCBGOLD is unhedged, while SCBGOLDH is hedged.

K-GOLD-A – A gold fund from Kasikornbank with two types: (A) (no dividend payout) and (D) (pays dividends four times a year). Both are nearly fully hedged.

Key differences to consider when choosing a gold fund

Point 1: Currency Hedging

Gold prices in the global market are quoted in USD. When converted to Thai Baht, the price fluctuates with exchange rates. If the baht weakens, the fund’s returns improve; if it strengthens, returns decrease.

If you have high risk tolerance, regardless of the baht’s movement, choose unhedged funds (Unhedge)—they perform well when the baht weakens but can incur significant losses if it strengthens.

To avoid currency risk, choose hedged funds (Hedge)—these track the global gold price more accurately.

Point 2: Dividend Policy

Some funds pay dividends regularly (e.g., K-GOLD-A(D)), while others do not (e.g., K-GOLD-A(A)). Funds that pay dividends may have lower long-term returns because cash is distributed out.

Point 3: Trading Area

TMBGOLD is traded in New York, while TMBGOLDS and SCBGOLD are traded in Singapore. The main differences are liquidity and price announcement timing. New York offers better liquidity but announces prices with a 1-day delay (T+1).

Who should consider investing in gold funds?

If you are a long-term investor – Gold funds are a good choice. They require minimal maintenance but provide exposure to gold returns. Suitable for busy individuals who don’t have time to monitor prices.

If you are a short-term trader or day trader – Gold funds are not ideal because they can only be bought or sold once per day at the NAV price, with transaction fees. In this case, Gold CFDs (Contracts for Difference) might be a better option—trading throughout the day with real-time global prices and more volatility.

How do Gold Funds differ from CFDs?

Gold Funds – Offer long-term exposure, priced once daily at NAV, require opening an account, and have management fees.

Gold CFDs – Offer real-time prices, can be traded throughout the day, have no management fees, but carry higher risk.

Summary

Choosing to invest in gold depends on your investor profile. For medium- to long-term investments or those who prefer low maintenance, Gold Mutual Funds are convenient, with various options and policies to suit your situation. For those with the skill and willingness to capitalize on short-term volatility, exploring Gold CFDs can also be worthwhile.