What is a Gold ETF? 

To answer this, it's essential first to understand what a gold ETF is. ETFs, or exchange-traded funds, pool investments from many individual investors. Available for purchase or sale on the stock market at any given time, their value is dictated by market dynamics. Now, imagine this concept applied to the gold industry.

 

What you get is a “basket of goods” related to gold. These “goods” may include shares from companies that deal with gold, agreements about future prices of this precious metal, or other related assets. In other words, they are physically backed by gold, but investors don’t own the gold bullion. As such, a gold ETF is like having a key to a gold vault—while you don't own any of the gold bars inside, your key's worth is tied to their combined value.

 

Pros and Cons of Gold ETF vs Gold Bullion

Whether investing in digital gold makes a better choice depends on several factors.

 

1. Investment Goals

Every individual invests differently based on their unique goals. For investors looking at long-term wealth conservation, gold bullion is an appealing choice. Unlike a gold ETF, which essentially offers a claim on the precious metal, gold bullions are tangible and cannot be duplicated or produced in greater quantity. This protects their value from complete devaluation.

 

But for investors in Singapore who are looking at short-term investment opportunities, a gold ETF is ideal. Its liquidity and flexibility enable you to trade them quickly to cash in on price fluctuations. In this regard, physical gold may require a longer time to liquidate due to transport and storage concerns, making it more suited for long-term investment.

 

2. Risk Tolerance

Investing in physical gold also gives you tangible ownership and unequivocal control over your assets compared to a gold ETF. In the latter case, what you possess is essentially a claim on the precious metal, and the actual gold is kept safe by a designated custodian. This arrangement can be risky if there are issues with the custodian and makes gold bullion a winning choice for investors seeking to minimise their investment risk.

 

3. Control

Gold bullion, unlike a gold ETF, is also not tied to the financial system. As such, should the system be destabilised by unforeseen calamities, such as wars, the value of your investment will be less susceptible to fluctuations and risks. Additionally, physical gold also isn’t vulnerable to cyber threats.

4. Cost

Investing in Gold ETFs Vs Physical Gold:

Storage Fee

If you invest in a lot of gold bullion, keeping your precious metals at home might not be pragmatic or safe, and you'd probably require professional storage services. While this comes with a cost, working with dealers like Indigo Precious Metals (IPM) can make it affordable.

 

At IPM, we provide bullion vault services in Singapore with no minimum charges. Additionally, these vaults are managed by a seasoned third-party partner with over 150 years of experience. Offering segregated and insured spaces for your precious metals, we ensure maximum safety and peace of mind.

 

Upfront Investment

When investing in physical bullion, another cost to factor in is the premium, which accounts for factors like the cost of making the gold bars and market fluctuations in demand and supply. However, this concern can be mitigated with IPM, where our premiums are displayed alongside the buy and sell prices on the price index. This transparency supports you in making more informed decisions, a feature that might not be universally offered across dealers.

 

Additionally, it is worth noting that it may not always be cheaper to buy a gold ETF as you might have to pay commissions ranging from 0.5% – 1% to the person who helps you buy them. Moreover, despite bypassing vault storage needs, gold ETFs like the renowned GLD still bear fund-level expenses, with an expense ratio of 0.40%.

 

In contrast, physical gold, such as what IPM offers, can be competitively structured. Leveraging an efficient business model, IPM is able to minimise traditional markups and operational costs, passing on these savings directly to investors in Singapore.

 

Make Informed Choices for Gold Investments with IPM

As you venture into the world of gold and precious metal investments, you may have lingering questions or uncertainties. This is where IPM can also step in to help. With decades of practice managing investments and trading in the banking industry, we have a profound understanding of the gold market and extensive hands-on experience.

 

Our day-to-day dealings with precious metals encompass a full spectrum of activities, from purchasing to selling, transportation, storage, and insurance. With our comprehensive involvement within and beyond Singapore, you can be assured of the depth and breadth of our knowledge.

 

Whether you're seeking advice on how to get started or need guidance as you weigh your options, our team is ready and equipped to assist you. Speak to us today and solidify your steps towards a more secure financial future.