Gold has long been trusted as a reliable way to protect and grow wealth, especially in periods of economic and geopolitical uncertainty.
For many investors, gold is not held to maximise returns, but to diversify portfolios, preserve purchasing power and strengthen portfolio resilience during uncertain times. Whether you're building wealth, preserving capital or managing risk, gold can play a strategic role within a broader investment plan.
Key takeaways
- Gold may help diversify a portfolio because it has historically shown low correlation with many traditional asset classes.
- Gold is often viewed as a store of value during periods of economic and geopolitical uncertainty.
- Gold may help preserve purchasing power during inflationary environments.
- Gold can contribute to long-term portfolio resilience when used alongside other asset classes.
- Gold also carries risks, including price volatility and the opportunity cost of not generating income.
Who should consider investing in gold
What investor profiles stand to benefit most from its inclusion in a portfolio? For those building their wealth, gold can play these roles:
- Providing greater diversification to your investment portfolio
- Supporting long-term financial goals without requiring constant attention
This article breaks down how gold can support your journey toward greater financial autonomy in Singapore, whether you are seeking stability, diversification or tactical opportunities as an affluent investor.
It also examines the various ways investors can gain gold exposure through DBS Treasures, including paper gold, ETFs, stocks, unit trusts and gold-linked notes.
DBS Chief Investment Office: Focus on Gold’s Enduring Appeal
Rather than focusing on short-term price movements, DBS CIO sees gold’s enduring appeal in its fundamental characteristics1: scarcity, liquidity, global recognition, freedom from default risk, and the ability to preserve purchasing power across time and political regimes. These attributes support its role as a store of value and portfolio diversifier over the long term.
What factors affect gold prices?
Gold's performance is shaped by factors such as interest rates, inflation expectations, US dollar movements and geopolitical developments. Instead of viewing gold as a short-term trade, investors should consider its role within a diversified portfolio.
How much gold should you strategically hold in your portfolio?
For balanced portfolios, DBS CIO’s analysis2 of historical market data suggests that a 5–10% allocation to gold can be a useful starting point, offering diversification benefits while keeping the overall portfolio mix broadly intact.
The Pros: Strategic Advantages of Gold
1. When markets turn choppy, gold helps steady your portfolio
Gold has historically helped cushion portfolios during periods of uncertainty. Its low correlation with equities and bonds can enhance diversification and support more balanced portfolio outcomes.
However, gold does not necessarily rise during every market downturn. Its performance can vary depending on the nature of the crisis, investor behaviour and broader market conditions.
This distinct behaviour is crucial when considering gold versus other traditional investment assets such as stocks, bonds or even alternative investments. Gold often acts as a non-correlated hedge, offering stability when other asset classes may be declining and enhancing overall portfolio .
2. When currencies fluctuate or inflation rises, gold helps protect purchasing power
Gold acts as a reliable store of value, especially during monetary debasement and rising inflation.
In today’s environment of expanding liquidity and geopolitical uncertainty, physical gold offers Singapore investors a way to safeguard their portfolio value against inflation’s erosive effects.
That said, gold is not a perfect inflation hedge. Over shorter periods, factors such as interest-rate expectations and market sentiment may influence performance, meaning gold may not always move in line with inflation.
3. When cash earns nothing, gold can preserve value
In environments with near-zero or negative interest rates, the value of holding cash diminishes. Understanding gold’s behaviour across different rate cycles helps investors make more confident decisions about liquidity versus long-term preservation, even with today’s positive interest rates.
Ready to diversify with gold?
The Cons: Risks of Gold Investing
While gold offers significant portfolio advantages, it has potential drawbacks and risks.
1. Price volatility
Despite its safe-haven reputation, gold prices can fluctuate significantly because of macroeconomic factors, geopolitical events and shifts in investor sentiment. Short-to-medium-term volatility means there is no guarantee against price depreciation.
2. Currency risks
For Singapore investors, gold is typically denominated in US dollars. This introduces currency risk, as USD/SGD exchange-rate fluctuations can affect the value of your gold holdings even if the USD price of gold remains stable.
3. Liquidity concerns for physical gold
While paper-gold instruments such as ETFs and Gold-Linked Notes GLNs) offer high liquidity, selling physical gold can be less immediate. It involves finding buyers, verifying authenticity and incurring transaction costs.
4. Opportunity cost
Investing directly in gold, whether through bullion or physically backed ETFs, means allocating capital to an asset that generally does not generate income such as dividends or interest. Its return relies solely on price appreciation.
This can represent an opportunity cost because the capital could otherwise be deployed in income-generating assets such as dividend-paying stocks or bonds.
This differs from gold-mining stocks or gold ETFs and unit trusts that invest in mining companies, which can offer dividends to shareholders.
While gold is often viewed as a defensive asset, it serves a different purpose from cash, fixed deposits or bonds. Cash and fixed deposits prioritise liquidity and capital stability, while bonds may provide income. Gold's role is typically centred on diversification, wealth preservation and enhancing portfolio resilience during periods of uncertainty.
Comparison: Types of Gold Investment in Singapore
For affluent individuals considering gold, it is worth noting that gold strengthens portfolios in many forms. The key is choosing an approach that aligns with your comfort level, financial goals and desired level of involvement.
Most investors prefer “paper gold” for its logistical convenience. This broadly refers to an asset that reflects the value of gold or has its performance linked to gold without requiring the investor to keep physical gold.
The main ways to gain gold exposure include gold stocks, gold exchange-traded funds, gold unit trusts, paper gold through a commodity investment account and gold-linked notes.
1. Stocks of Gold Miners
These appeal to investors who are comfortable with equity risks in exchange for potential dividends and growth. They blend commodity exposure with equity upside but require due diligence on management and operations.
Before investing in stocks of gold miners, consider:
- Operational efficiency. Lower production costs can boost profitability, especially when gold prices rise.
- Profitability. Promising mine discoveries can deliver outsized returns.
- Availability of dividends. Many established miners offer dividends, which may appeal to income-focused investors.
2. Gold-focused Exchange-Traded Funds
Gold-focused exchange-traded funds (ETFs), offer a low-maintenance, cost-effective way to gain gold exposure. This can make them suitable for hands-off investors seeking liquidity and simplicity, as well as those making tactical allocations.
Gold ETFs typically comprise:
- Shares in gold miners, refiners or precious-metal streaming companies
- Futures contracts or physical gold bullion, although the investor does not own the metal itself
Why consider gold ETFs?
- Diversification: Over 100 global ETFs cater to different strategies, ranging from pure bullion exposure to leveraged approaches.
- Liquidity: ETFs trade like stocks, with real-time pricing and no storage requirements.
- Transparency: Physically backed ETFs can track gold prices closely, minimising tracking error.
3. Gold unit trusts
Similar to gold ETFs, gold-linked funds appeal to investors who prioritise liquidity and simplicity. The key distinction is that gold-linked funds are actively managed by professional fund managers who seek to outperform gold ETFs.
The management fees for gold unit trusts tend to be higher than those for gold ETFs. Through your Wealth Management Account, you can compare these fees and access a shortlist of positively rated funds aligned with DBS CIO’s investment views.
4. Paper Gold: A Convenient Way to Gain Gold Exposure
For investors looking to add gold to their portfolio with ease, paper gold offers a seamless way to gain exposure to gold price movements without the complexities of physical ownership.
- No physical storage required: Gain exposure to gold without having to buy, store or safeguard physical bullion.
- Start small: Invest from as little as 0.10 oz, making it easier to incorporate gold into your portfolio.
- Digital convenience: As paper gold is available in multiple currencies through digital investment platforms, investors can trade paper gold easily online and adjust their exposure as their needs evolve.
5. Gold-Linked Notes
Gold-Linked Notes, or GLNs, can be a good investment if you expect gold prices to remain stable or increase. They are relatively short-term investments and can be tailored to your risk appetite in discussion with your banker or broker.
Before investing in GLNs, consider:
- Price expectations. If you expect gold prices to rise sharply, you can consider buying spot gold, which can be bought or sold at the current market price.
- Impact of price changes. Gold prices can move quickly. While gold is regarded as a safe-haven asset, its price can still fluctuate.
- Currency risks. As gold is typically priced in US dollars, Singapore investors need to consider foreign-exchange movements against the Singapore dollar.
Avoiding Pitfalls: Common Mistakes in Gold Investing
- Emotional trading: Reacting to market fear or euphoria can lead investors to buy high and sell low. A disciplined, long-term approach grounded in gold’s strategic role can help avoid impulsive decisions.
- Ignoring portfolio context: Over-allocating to gold or viewing it in isolation can create concentration risk. Gold should be held as one component of a diversified portfolio, balanced against your overall asset mix, risk tolerance and investment horizon.
- Not understanding liquidity and costs: Investors sometimes overlook the practical considerations associated with different gold vehicles. Physical gold involves storage and insurance costs and may have lower liquidity. Paper-gold instruments require an understanding of their specific features and risks.
- Lack of diversification within gold: Relying on only one type of gold instrument, such as gold stocks, exposes investors to risks specific to that instrument. A mix of gold-related assets may help mitigate these risks and capture broader opportunities.
- Disregarding currency impact: Gold investments are often denominated in US dollars. A rise in the USD price of gold does not automatically result in proportional gains in Singapore-dollar terms, making it important for Singapore investors to consider USD/SGD movements.
Investing in Gold with Clarity
There are many ways to invest in gold without the complexities of physical ownership. By selecting the right tools, whether paper gold, ETFs, stocks, unit trusts or GLNs, you gain more control over how your wealth grows and stabilises.
The decision to hold gold should begin with its intended role in your portfolio. Consider whether it complements your existing investments, supports your long-term objectives and aligns with your risk tolerance, time horizon and liquidity needs.
Build toward financial autonomy with insights from DBS Treasures.
