Gold through mutual funds: A smart guide to choosing safe assets

As the global economy fluctuates and the Thai Baht changes, many investors are turning back to Gold Funds. Gold has been a trusted asset for both foreigners and Thais for a long time, serving as a (Store of Value). If you’re interested in investing in gold but don’t want to buy bars to store at home, gold funds are a more convenient and safer alternative.

What exactly is a Gold Fund?

Think of it simply: a fund is pooling money from many investors into one group, then having a securities company (Asset Management Company) with expertise invest that money according to a set plan. This could be in stocks, bonds, oil, or in this case, gold.

Most gold funds found in the Thai market are classified as Passive Funds, meaning they follow the global gold price without a manager trying to outperform it. These funds usually reference the price of SPDR Gold Trust, a large ETF that invests in physical gold. Some funds invest directly in physical gold abroad, which must meet international standards (with purity not less than 99.5%).

How to choose a gold fund that suits you

Many people miss this point because they think all gold funds are the same. In fact, there are important differences:

First: Hedging against currency risk (Hedge vs Unhedge)

This is a common misconception. Gold is traded worldwide in dollars, but our returns are in Baht. Therefore, the exchange rate impacts the investment.

For example: if the Baht depreciates, the Baht-denominated value of the gold fund increases (because the dollar gets more expensive), while the global gold price may stay the same. This results in a special profit for those holding Unhedge.

Conversely, Hedged Funds (such as SCBGOLDH, K-GOLD-A()) protect against dollar fluctuations through forward contracts, so their returns follow the global gold price 100%. However, they miss out on potential gains from Baht depreciation.

Choose Unhedge if: you believe the Baht will weaken further or can tolerate uncertainty.

Choose Hedge if: you want stable, predictable returns and prefer peace of mind without worrying about currency fluctuations.

Second: Dividend policy

Some funds (like K-GOLD-A(D), SCBGOLDH) pay dividends 2-4 times a year. This means profits are not fully reinvested but paid out to unit holders. These dividends are not reinvested, slightly reducing long-term compound returns.

On the other hand, if you prefer cash flow at regular intervals, dividends are beneficial.

Third: Trading market and liquidity

TMBGOLD trades in New York with the highest liquidity, but prices are announced with a delay of (T+1).

TMBGOLDS, SCBGOLD trade in Singapore with slightly lower liquidity.

This difference does not affect basic returns but impacts trading speed and fees. For long-term investors, this is less critical.

Comparing popular gold funds in Thailand

Investing in gold funds vs trading gold contracts (CFD)

Both methods differ mainly in:

Gold Funds are suitable for:

• Medium to long-term investors (several months or more)
• Those who don’t have time to monitor daily prices
• Those who want experts to manage their investments
• One-time investment and then wait

Limitations: Trading occurs once per day at NAV closing price; intra-day volatility cannot be captured.

Gold CFDs are suitable for:

• Short-term traders (day trading)
• Those who want to catch tick-by-tick movements
• Those aiming to profit from daily volatility
• Those who can closely follow the market

Advantages: Real-time trading based on global gold prices, with leverage (if desired), and quick order execution.

Summary: Which should you choose?

If this is your first decision, ask yourself these three questions:

1. How many years will you hold? - More than 1 year? Go with a fund. Less? Consider CFDs.
2. Do you want cash dividends? - Yes = choose K-GOLD-A(D) or SCBGOLDH / No = choose Unhedge or Hedge based on your view of Baht movement.
3. Are you worried about currency? - Worried? Choose Hedge / Not worried or believe Baht will weaken? Choose Unhedge.

Gold funds are a safe, convenient way to invest, with the aura of smart investing. They are straightforward and easy to manage, likely meeting most investors’ needs.