Investing in gold, gold ETF and paper gold: Pro, con and low barrier to entry alternatives

Investing in gold, gold ETF and paper gold: Pro, con and low barrier to entry alternatives

Start Investing

August 25 • 3 min read

語言: 廣東話

Amid global economic uncertainties, investors are becoming cautious when it comes to making new investment. While the safest route is to leave assets as bank deposits, the asset value would be depreciating over time in the face of inflation. Depending on the situation, investing in gold can be a safe alternative – this also explains why gold price has recently been increasing at a steady pace (and exceeded US$2,000 per ounce at one point). Despite some up and down, the gold price has repeatedly hit new record highs over the course of 2020, causing analysts and banks to revise their forecasts consequently.

Investors who are interested in gold can choose to purchase physical gold or explore alternatives such as gold ETF and paper gold.

Gold price has been on the rise in the past year. Source: TradingView

Physical gold: proper maintenance is required to preserve the value

Physical gold comes in various forms such as gold nuggets, gold bars and jewelries/accessories. One advantage of physical gold investment over other options is the fact that investors get to own something that they can see and touch.

Investors from the older generation like to visit gold shops to purchase or make accessories for the purpose of investment or value preservation, however purchasing gold jewelries or accessories typically include additional fees such as design, making and wastage charges.

One convenient way to invest in physical gold is to invest directly through retail banks. Many banks in Hong Kong such as Bank of China, Hang Seng Bank, Wing Lung Bank, Shanghai Commercial Bank etc. offer physical gold trading service. However, investors should be mindful that not all bank branches stock gold so it would be best to make a phone call before making a visit.

Physical gold also requires storage and proper maintenance as any damage would affect the gold’s value. Investors may explore vault service for storage and safety.

Paper gold: low barrier to entry but be cautious when selecting service provider

Gold passbook account or paper gold is an alternative for investors who do not wish to deal with physical assets. While investors can trade gold on a passbook account, there is no actual buying or selling of physical gold – this also means physical gold can not be withdrawn from the account either. The passbook accounts only record gold deposits and trades, hence the investors will not be getting any interest income from the bank. The only way to make money from paper gold investment is through price appreciation as the price of paper gold fluctuates with the gold market. One other benefit of paper gold investment is its low barrier to entry as the minimum transaction amount can be very low.

The value of paper gold depends entirely on the gold passbook account, this makes the credibility of financial institutions or banks who offer this service extremely important. For example, in an unlikely event of bankruptcy, the value of paper gold held in the passbook account may return to nothing.  

Gold ETF: Low barrier to entry, high transparency and liquidity, watch out for management fee

Investors who are interested in both gold and the stock market can choose to either invest in gold related companies or explore gold ETFs. Gold ETFs are gold related funds which offer high transparency and liquidity when it comes to gold investment. Gold ETFs that are currently available on the Hong Kong Stock Exchange include SPDR Gold ETF (2840), Value Gold ETF (3081) and Hang Seng RMB Gold ETF (83168). Gold ETFs are backed by gold commodity, this means when an investor purchases gold ETF, the issuer will buy physical gold of corresponding value and place it in a high security vault.

Apart from being listed in Hong Kong, SPDR Gold ETF is also listed in the U.S. and Japan which are considered more international markets. Value Gold ETF is issued by a Hong Kong asset management company called Value Partners. The Hang Seng RMB Gold ETF is issued by Hang Seng Investment Management, however this requires RMB for trading.

Price of SPDR Gold ETF (2840) is rising following the rise in gold price. Source: SoFi HK

According to the price on 18th August 2020, Value Gold ETF costs about HK$48 per share, and 1 lot consists of 100 shares – which means HK$4,800 per lot. On the U.S. exchange, GLD ETF share price in the same period is US$186.5 per share with no lot restriction. With gold ETFs, casual or new retail investors can participate in the gold market with funds as low as HK$1,000. One thing to note however is ETFs generally have management fees, but they typically do not exceed 1%. 

Participation in the stock market always involves risk. Gold ETFs in Hong Kong do not have hedging mechanisms so whenever gold price drops, the price of gold ETFs will also follow.

Explore overseas Gold ETFs

While there may only be a few gold ETFs in Hong Kong, the concept of gold backed ETFs have been popular in the U.S. and Europe for the past decade. There are close to 100 gold ETFs registered around the world and Hong Kong investors can easily explore them through some of the local and international brokerage platforms. 

Free stock offers from brokerages

Many investors invest in gold ETFs through the Hong Kong or U.S. stock exchanges to take advantage of high liquidity. The following are some of the popular welcome offers from stock brokerages:

Securities FirmSoFi HKuSMART Securities9F SecuritiesFutu Securities
Free Stock Offers and ConditionsEarn 20 SoFi points after account opening. Get more points through various activities and exchange them for free SnapChat, Twitter or Coca Cola shares.1 share of Jiumaojiu after account opening

2 shares of Peijia Medical if first-time deposit > HK$20,000

2 shares of Ping An Good Doctor if first transaction is over HK$500 and assets under management amount reach HK$100,000 or above within 30 days upon account activation
Get 2 and up to 10 shares of CLP Holdings after depositing a minimum of HK$20,000Get 1 share of HSBC and Tencent each after depositing HK$20,000 or more
Other Offers⭐️No commission and platform free for U.S. and Hong Kong stock trading⭐️Zero commission plan for U.S. and Hong Kong stock trading⭐️0 platform fee and transaction fee for HK stocks.

⭐️Free 30-day trial for LV2 streaming.
⭐️HK$100 supermarket gift voucher
Life long commission free Hong Kong stock trading
More DetailsVisit BrokerVisit BrokerVisit BrokerVisit Broker
The above offers are limited time offers and they are subjected to periodical updates. Latest offer information can be found on securities firm’s websites.

Recommended Readings

Important information:

Investment involves risks. This information is intended to be educational and is not tailored to the investment needs of any specific investor. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action. Past performance is no guarantee of future results. The value of investments and the income from them can go down as well as up, so you may not get back what you invest.

#Gold ETF
#Gold investing

Track. Plan. Get advice.

Making your finances easier

Follow us on social for more useful news!
22/F, 3 Lockhart Road, Wan Chai, Hong Kong
Planto Limited © 2021