Gold has always been a fascinating store of value in many societies throughout history, but lately, it appears to have lost some of its lustre. Gold prices over the past 12 months have fallen by about 28% from US$1,712 per ounce to US$1,212 per ounce. Meanwhile, major stock market indices around the world, such as the S&P 500 Index in the USA, the Hang Seng Index in Hong Kong, the FTSE 100 in the UK, and the Nikkei 225 Index in Japan, have advanced by 18%, 10%, 12%, and 68% respectively. Even our local stock market, as measured by…
Gold prices over the past 12 months have fallen by about 28% from US$1,712 per ounce to US$1,212 per ounce. Meanwhile, major stock market indices around the world, such as the S&P 500 Index in the USA, the Hang Seng Index in Hong Kong, the FTSE 100 in the UK, and the Nikkei 225 Index in Japan, have advanced by 18%, 10%, 12%, and 68% respectively.
Even our local stock market, as measured by the Straits Times Index (SGX: ^STI), has fared better than gold with a 4.5% gain in the same period.
But even so, there are some professional money managers such as Eric Sprott from Sprott Asset Management that sees “a bright future” for gold prices over the next 12 months.
I am not about to debate the short-term attractiveness of gold but history has shown that over the long-term (measured in decades), gold has lost out to equities both in Singapore and over in the USA.
That said, there will always be some investors in Singapore who will find room for gold in their portfolios. And for them, a convenient vehicle for an investment in gold could be the SPDR Gold Shares (SGX: O87), which is a locally-listed exchange-traded fund that tracks the spot price of gold.
Kevin Quigg, a senior executive at State Street Bank & Trust, which is the provider of the SPDR Gold Shares ETF, recently talked to TheStreet.com about the fund. Here are some important facts investors should know.
1) The difference between holding the SPDR Gold Shares ETF and holding physical gold
According to Quigg, the ETF is “backed by 100% physically allocated gold in the HSBC vault in London, so really it’s securitized gold… [U]nlike the physical market where it’s obviously a market where you need to buy and sell in the marketplace itself, [the ETF] is represented in the secondary market through shares.”
2) One advantage investors in the ETF has over holders of physical gold
State Street learnt that most investors in the ETF “appreciate the liquidity that the SPDR Gold Shares provide.” So, that could be an important differentiating factor, the fact that investors in the ETF can have liquid access to real gold locked in a gold vault in London, instead of having to worry about the logistics of buying, selling, transporting, and storing actual gold itself in a transaction.
3) The difference between investing in gold miners and investing in the SPDR Gold Shares ETF
Some notable professional money managers like Seth Klarman and John Paulson have chosen to invest in gold miners as their way of having exposure to gold. But, many gold miners’ share prices have turned out worse than the decline in physical gold itself in 2013. That is why, it is important for investors to understand the difference between investing in a gold miner and investing in physical gold.
The most important distinction is that the former leaves investors open to company specific risks. The share price of a gold miner will undoubtedly be affected by the price of gold, but according to Quigg, it is also “dependent on the relative poor or strong management of that company – how much or how little gold they are pulling out from their mining operations and, generally speaking, how efficient they are.”
Foolish Bottom Line
There are often important differences between different gold-related investment vehicles that can result in massively different outcomes for a given price movement in gold. While it’s possible for investors to occasionally lump all gold-related investments into one undifferentiated mass, it might be unwise to do so.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.