Investing in gold: physical, futures or ETF?

Invest in futures to gain more gold positions

Suppose an investor wants to hold gold for 10 years and sell it at the end of the 10 years to get a return. Which investment method is more cost-effective? Is it more reasonable to buy physical metal, hold it and sell it after maturity? Or invest in gold futures To get the same position? Or does it mean that holding a gold ETF will get a better cost-effective return? Let's take a look at Haidu Investment.

Physical gold investment cost

Physical gold provides a direct gold position. The direct holding cost of physical metals is easier to calculate. Assuming that you buy gold at a price of more than $4 (about 35 basis points), you also need to pay a premium of about 30 basis points per year for the gold reserves. After 10 years, it will be sold at the current gold spot price. Taken together, the total cost of investing in physical gold is 3.3%. If you buy 400 ounces of gold with all US dollars in the current period, then after 10 years, the accumulated net income is converted to the current spot price, which is equivalent to holding 386.8 ounces of gold.

Gold futures investment cost

Futures contracts are more complicated. When investors buy futures products, there is almost no purchase fee (only 10 or 20 cents). However, futures transactions must pay a certain commission, which is approximately $0.25 per ounce. Therefore, investing in futures can get more gold positions, but the corresponding costs are higher. This is because the gold futures market has the characteristics of futures premium, that is, the price of long-term contracts is higher than that of short-term contracts.

Gold ETF

Unlike physical gold, gold ETFs can be purchased on margin, similar to futures investments. ETF allows investors to obtain gold positions, but at the same time avoids the cost of holding spot gold, such as custody fees and insurance fees. Investors pay a certain share of the investment value each year based on the fund's expense ratio. Expense ratio (expense rate) is the fee charged by the fund to pay management fees.