New ways to invest in the gold safe haven

The all-time high of US$1,910 per ounce represented a return of almost 40 per cent during the first eight months of this year. This is one of the reason Thai people are rushing to queue for gold bars in Chinatown.

The majority of analysts remain bullish on the gold price, with its high volatility, while their forecasts on the US and European economic outlooks have shown great concern about the weakening of the credit rating. Gold is no longer just ornamental, it is now an investment asset.  

Nowadays there are several options for gold investment depending on your financial standing, risk profile and investment goals. The spot gold trading volume in Thailand is now in the top third of the world rankings after India and China. Investors holding gold bars seem to prefer to receive something tangible that can be kept in personal possession or safely stored in a bank vault. Gold futures trading on the Thailand Futures Exchange (TFEX) started two years ago are also in the top five of the world standings after New York, Japan, India and China.

The Gold ETF (exchange traded fund) is a new type of gold investment in Thailand. The Gold ETF listed on the Stock Exchange of Thailand (SET) underlying assets consists of gold bullion. ETF products are open-ended funds in nature, meaning that there exists the flexibility to create new shares when needed.

The first Gold ETF (GLD) was launched on August 8, 2011 on the SET and represented 96.5 per cent purity, with 0.0015g of gold. The fund will invest in the SPDR Gold Trust, which is the largest investment in gold bullion in the world, stored at the HSBC bank in London. Investors can trade the Gold ETF like a stock trading on existing accounts, or a new account of brokers and sub-brokers. On the first trading day on the SET, the GLD rose by 6.58 per cent from the IPO price. Just three weeks after it was launched, the price of GLD has increased continuously, up to 15.53 per cent. The size of the fund has risen by 54 per cent to Bt887 million from the initial amount.

There are more and more Gold ETFs in the process of listing on the SET this year. Cooperation between local asset management firms and local gold traders will be an essential key driver for the Gold ETF sector. Market makers should perform their functions efficiently to ensure the liquidity of Gold ETFs.

Gold ETFs represent an easy way to gain exposure to the gold price, without the inconvenience of storing physical gold bars, which are traded like shares on the stock exchanges. Every trading transaction is guaranteed by the clearing house, a subsidiary of the SET. Investors can also track real time prices from the brokers, as well as on online media.

Kesara Manchusree is managing director of the Thailand Futures Exchange.