Learning how to invest in gold in the UAE is a good idea If you want to hedge your investments against inflation, deflation, and geopolitical uncertainty – or if you simply want to reduce portfolio risk through the help of diversification. 

As a resident of the UAE, you luckily have a few options when it comes to choosing how to invest in gold – and it is never too late to get started. 

Over the years, gold has gained popularity as a store of value – it can maintain its value during economic downturns and periods of uncertainty. As a result, it has been the go-to haven when the economy (and the stock market) is in trouble. 

“There have been eight recessions between 1973 and the most recent in 2020,” according to Forbes. “In all but two of these, gold has outperformed the S&P 500.” 

As we will always have economic downturns and uncertainties with us, gold will continue to appeal to many investors. 

But how can you as an investor in the UAE invest in gold?

In what follows, we will highlight the various ways you can invest in gold and how you can do so easily and securely in the UAE. We’ll cover:

1. When should you invest in gold? The benefits of gold investment
2. How to invest in gold in the UAE
3. Investing in gold or trading gold
4. How to buy gold in Dubai 

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1. When should you invest in gold? The benefits of gold investment

Before considering practical ways for you to invest in gold, let’s spend some more time explaining the reasons why gold could be a viable investment asset. 

Gold as a store of value

A store of value is “an asset, currency, or commodity that maintains its value over a long period,” according to the Corporate Finance Institute, a learning platform for finance professionals.

Gold’s function as a store of value derives from its supply constraints (the supply of gold on earth is limited). 

When the supply of an asset is limited and cannot be increased arbitrarily, it will tend to maintain its value over time. Said differently, its value cannot be eroded by increased supply and value will only depend on demand. 

Gold’s success as a store of value can be seen in the following chart showing the upward trend in the price of gold since the 1970s:

Source: Economics Observatory

Production of new gold from mines has been decreasing since 2000, according to Auctus Metals, a gold investment firm. Also, Provident Metals, an online precious metal dealer, predicts that gold mining will become unsustainable by 2050. 

All of these suggest that gold will continue to maintain its function as a store of value. 

Gold as an inflation hedge

Assets that have a store of value also tend to provide a hedge against inflation. 

Inflation is always and everywhere a monetary problem, said Milton Friedman, the Nobel-prize-winning Economist. His point is that it is only a constant increase in money supply that causes a consistent and high rise in the price level.  

However, while the supply of fiat money can be increased by the central bank at any time, increasing the supply of gold is more difficult (mining is hard and expensive). And as we have seen, supply has been decreasing since 2000.

Therefore, when inflation is biting hard and fiat money is losing value, gold can maintain its value. 

For example, when the inflation rate averaged 8.8% between 1973 and 1979, gold boasted a 33.5% average annual return. 

However, gold was unable to justify its credentials as an inflation hedge during high inflation periods in the 1980s and the 1990s. Also, its return did not keep up with inflation in the aftermath of COVID-19. 

So, is gold an inflation hedge or not?

“Some studies have found that gold can be an effective inflation hedge, but only over an extremely long time horizon of more than a century,” concludes Forbes (quoted above). 

While gold should theoretically provide a hedge against inflation, empirical evidence seems to conclude that it does this better in the long run. 

Gold as a deflation hedge

Investors also like gold because it can function as a hedge against deflation. 

“Although it may seem counter-intuitive, gold can be as effective a hedge against deflation as against inflation; in fact gold’s purchasing power is more likely to increase in deflationary periods than during inflationary eras,” according to Reuters.

During the Great Depression, “gold’s purchasing power increased substantially … as it had in previous deflationary eras.” 

Gold as a haven

According to the Forbes article mentioned in the introduction, gold outperformed the S&P 500 in six of the eight recessions between 1973 and 2020. 

Source: Forbes

They also note that during the period of the Great Recession, gold prices increased by almost 50%. 

Various studies compiled by the Economics Observatory, a platform that makes academic research accessible to policymakers and the general public, show that gold was a good safety net during COVID-19, has been a haven during global crises, and is also a safety net against economic policy uncertainty and unstable market conditions. 

Gold and portfolio diversification

Modern Portfolio Theory suggests that when a portfolio contains non-positively correlated assets, its overall risk is reduced. Consequently, investors have embraced portfolio diversification as a good way to reduce risk and even increase returns. 

As we have seen, when stocks struggle during economic downturns, gold tends to grow. For example, when stocks fell by 22% in 2022, gold still grew by 0.4%. 

This negative correlation during economic downturns makes gold a good option for diversifying a portfolio and thus reducing its overall risk and volatility. 

2. How to invest in gold in the UAE: 5 options for gold investing

If any of these reasons for buying gold impresses you, then you might be wondering how to invest in gold in the UAE.  

Luckily, as a resident of the Emirates, you have several options to choose from. 

Let’s consider some of the popular options:

1. Gold bullion

Gold bullion is tangible gold “that is officially recognized as being at least 99.5% and 99.9% pure,” according to Investopedia. They can be in the form of bars (heavy and small) or coins. (Some people also invest in physical gold by buying gold jewellery). 

Source: Money.com

Physical gold is available for purchase and sale at Dubai Gold Souk. However, there are many disadvantages to investing in physical gold. 

While some people like the thrill of holding physical gold, illiquidity is often an issue. This is especially true of larger gold bars. Since these bars cannot be divided, the investor can’t sell a part of it.

Security is another issue since gold bars and coins can be lost or stolen. To hedge against this, some gold owners purchase insurance, which means additional costs.

Finally, “Since gold coins and bars must be produced, packaged and shipped, they can come with high premiums, especially if they’re rare or have historical significance,” according to CBS News. 

For example, the final price of gold jewelry includes the value of gold in it calculated at the prevailing gold rate and making charges (or wastages) which can be up to 25% of the final price. 

2. Stocks of gold companies

Many companies in the US stock market are involved in the mining, production, delivery, and sales of gold. By buying the stocks of these companies, investors can gain exposure to the gold market since these stocks are positively correlated to gold prices.

In addition, stock ownership will give you voting rights and a chance to earn dividends from gold companies.  

This is similar to buying Real Estate Investment Trusts (REITs) instead of directly investing in physical real estate. 

One of the challenges with gold stocks is how to attain diversification. Purchasing many gold stocks might be too expensive for the average retail investor while holding on to just one or two will be too risky. 

Moreover, many retail investors don’t have the time or expertise to evaluate various gold companies and choose the ones that will offer better value going forward.

3. Gold mutual funds

Mutual funds can solve the problem of diversification. Retail investors can own shares in a gold mutual fund which will have investments in many gold stocks and even in gold bullion. Consequently, a single share of a mutual fund will represent exposure to tens or hundreds of gold stocks and will be correlated with the value of gold.

Despite this crucial advantage, there are some challenges with mutual funds: 

• Minimum investment requirement: Most mutual funds will require investors to have a minimum capital level before they can buy shares in the fund. This can be an entry barrier for many retail investors.

• High cost: Mutual funds are actively managed funds that try to outperform the market. In doing so, they buy and sell stocks regularly, leading to high operating expenses. These operating expenses are then passed to fund owners as high management fees. 

• High taxes: Frequent buying and selling also generate more taxable events, leading to high capital gains tax.

• Illiquidity: Mutual funds, unlike stocks, cannot be traded during trading hours. Investors must wait till the end of a trading day before they can buy or sell new shares in the fund.   

• Transparency: Mutual funds are not mandated to publish their holdings. Investors might therefore be unaware of the assets underlying their shares in the fund. 

4. Gold exchange-traded funds (ETFs)

Gold ETFs also invest in gold bullion and/or gold stocks. So, a share in a gold ETF reflects exposure to many gold stocks and/or gold bullion. 

However, unlike gold mutual funds, gold ETFs are traded like stocks during trading hours so you can buy gold at market price. Also, they seek to track the performance of an underlying market index instead of trying to beat it, leading to lower trading frequency. 

Below are some of the pros of gold ETFs: 

• Accessibility: Most ETFs can be traded fractionally. That is, if you can’t afford to buy a single share of an ETF, you can buy a fraction of a share (for example, 0.1 of a share). Retail investors with little capital can also invest in gold in this way. 

• No minimum investment: ETFs don’t require a minimum capital level for access. This fact also increases accessibility for retail investors. 

• Low cost and taxes: Since ETFs seek to track instead of outperform an index, trading frequency is low. Thus, management fees and taxes are very low. 

• Liquidity: ETFs are liquid as they can be traded during normal trading hours. 

• Transparency:  ETFs are mandated to publish their holdings. Investors can readily know what underlying assets they are exposed to. 

When you buy a gold exchange-traded fund, what you have is some shares in the ETF, not physical gold. In the same way, when you sell your shares, what you receive is a dollar amount (or in whatever currency the trade takes place) and not physical gold.  

5. Gold futures and options

Gold futures are contracts that allow you to buy or sell gold at a future date at predetermined prices. Futures are standardised contracts that can be bought or sold on exchanges. 

Gold options are contracts that give you the right but not the obligation to buy or sell gold at a future date for a predetermined price. 

Both derivatives can be used to open a long or short position on gold prices. 

Investors are attracted to gold futures and options because of the availability of leverage. Leverage gives you greater exposure beyond your capital which allows you to make high profit. For example, with a 10X leverage, you only need $100 to make a buy order worth $1,000. 

While gold options and futures provide high upside potential, the downside risk is also enormous and it often results in huge losses. 

3. Investing in gold or trading gold

While there are those interested in investing in gold, others are interested in online gold trading in the UAE. 

What are the differences between gold investors and traders? 

First is the time horizon of both. 

Gold investors often have a long-time horizon and are more concerned about the value that gold provides for their overall portfolio – inflation hedge, haven, and diversification, among others. 

Unlike gold investors, gold traders are more concerned about earning an income from the short-term fluctuations in gold price. 

Source: DBS Bank

Second, investors are often concerned about the fundamentals of any gold asset they are evaluating while traders often prioritise technical analysis showing short-term price movements. 

Third, while investors can buy gold through any of the 5 methods above, traders are often limited to the liquid ones – gold ETFs, gold futures and options, and gold stocks.

As we will see below, Sarwa Trade allows both gold trading and gold investment in the UAE.  

4. How to buy gold in Dubai

Investing in gold ETFs on Sarwa Trade

The accessibility, liquidity, transparency, and cost-effectiveness of gold ETFs make them the best way for retail investors to gain exposure to the gold market. 

Investors and traders can buy gold in the UAE via gold ETFs and stocks through the Sarwa Trade app. The following gold ETFs are currently available on the platform: 

• GLD (SPDR Gold Trust): Launched in 2004, GLD provides investors with cost-effective and secure access to the gold market. It invests in gold bars and it is the largest physically backed gold ETF in the world with assets under management (AUM) of $54.17 billion and an average trading volume of 6,589,925. 

The fund has an expense ratio of 0.40% and a 3-year daily total return of 7.35%.  

• GLDM (SPDR Gold MiniShares): GLDM is the low-cost version of GLD, with an expense ratio of 0.10% and a price that is currently about one-fifth of GLD. Launched in 2018, it also invests in physical gold.

The fund’s AUM is $6.37 billion and the average trading volume is 2,791,410. Its 3-year daily total return is 7.63%. 

• IAU (iShares Gold Trust): IAU was launched in 2005 to provide a safe, cost-effective, and simple way for investors to get exposure to gold without taking physical delivery. 

The fund also invests in physical gold and it manages assets worth $25.6 billion. The average trading volume of IAU is 5,242,995, the expense ratio is 0.25%, and the 3-year daily total return is 7.47%.  

• SGOL (abrdn Physical Gold Shares ETF): SGOL is another low-cost gold ETF with an expense ratio of 0.17%. Launched in 2019, its AUM is $2.71 billion while the average trading volume is 2,731,101. The ETF also has a 3-year daily total return of 7.60%

• OUNZ (VanEck Merk Gold Trust): Started in 2014, OUNZ invests in gold bullion and provides investors with a cost-effective way to gain exposure to the gold market. VanEck, the fund provider, allows physical gold redemption; that is, investors who want to get physical delivery of gold can choose that option. 

OUNZ currently manages $789.02 million with an expense ratio of 0.25%, an average trading volume of 1,031,495, and a 3-year daily total return of 7.50%.  

• AAAU (Goldman Sachs Physical Gold ETF): AAAU also allows the physical delivery of gold. It currently manages  $594.25 million at an expense ratio of 0.18%. The average trading volume of this fund is 2,089,163 and its 3-year daily total return is 7.56%. 

• BAR (GraniteShares Gold Shares): BAR is another low-cost physically-backed gold ETF with an expense ratio of 0.17%. Founded in 2017, its AUM is $928.22 million, the average trading volume is 698,158, and the 3-year daily total return is 7.57%.

Investing in gold stocks on Sarwa Trade

The gold ETFs available on Sarwa Trade provide you with an opportunity to invest in gold without necessarily taking physical delivery of the commodity. 

But what if you are interested in the stocks of gold companies instead? 

We have got you covered as well. 

Currently, you can buy the stock of Barrack Gold (Ticker: GOLD), a gold mining company headquartered in Canada. Also, keep an eye out because other gold stocks will be available on the app soon. 

Why buy gold ETFs and stocks on Sarwa Trade?

At Sarwa, our goal is to make investing (and trading) as accessible, cost-effective, and simple as possible. 

Below are the advantages of investing or trading gold ETFs and stocks on Sarwa Trade:

• Fractional trading: We offer fractional trading for both stocks and ETFs. If you can’t buy a whole share, buy just a fraction. 

• No account minimum: Do you have $1 to invest or trade? Then you are already qualified to use Sarwa Trade. 

• Instant deposits: Do you remember that time you couldn’t buy that stock at your target price because, by the time your deposit was completed, the price had increased? 

On Sarwa Trade, you will never have that problem. As you are receiving a debit alert from your bank you are receiving a credit alert on your Sarwa account. 

• No international transfer fees: Deposit and withdraw your funds at zero cost with free AED transfers (whether savings account or current account) in the UAE. 

• Competitive prices: Sarwa only charges the greater of $1 and 0.25% of the traded value of stocks and ETFs, which is less than the average fee charged by brokers.  

• Simple and intuitive: If you are like most people, you have probably uninstalled an app because of poor interface. That is why Sarwa created a simple and intuitive dashboard that will help you access all relevant information as well as trade stocks and ETFs comfortably.  

[Are you an investor interested in the hedging and risk-reducing benefits of gold or a trader looking to make short-term profits from the gold market? Sign up for Sarwa Trade to cost-effectively, securely, and conveniently invest in and trade gold ETFs and gold stocks.]

Takeaways

• Investors like gold because it is a store of value, a haven during economic uncertainty, a deflation and inflation hedge, and an opportunity for portfolio diversification. 
• You can invest in gold by buying gold bullion, stocks, ETFs, mutual funds, or futures and options. 
• Gold is attractive to both investors, with a long-time horizon, and traders, with a short-term horizon. 
• Investors and traders in the United Arab Emirates can buy and sell gold by opening an account on Sarwa Trade.