Others cite its volatility as a negative factor, because its price is affected by fast-money traders lured by the leverage of commodities contracts. The price can tumble just as quickly as it rises.
Still, even some conservative managers recommend a small allocation in gold as part of a balanced portfolio. EverBank's Trotter puts his own account at 5% to 10%
How to buy
Here are three ways to invest in gold:
1. Buy funds: If you are looking for a way to invest in gold, one of the easiest ways to do it is to buy an exchange-traded fund, such as SPDR Gold Shares (GLD, news), iShares Gold Trust (IAU) or Market Vectors Gold Miners (GDX), which tracks gold miners. And there are ETFs that are tangentially linked to gold, such as Physical Platinum Shares (PPLT), along with ETF baskets of precious metals, such as Physical Precious Metals Basket Shares (GLTR), which holds gold, silver, platinum and palladium.
The advantage that ETFs have over mutual funds is that they are easier to trade and ETF costs are usually lower. But the downside of investing in a gold-related ETF is that the gains are not always direct and can sometimes lag the rise in gold prices. The risk is that prices can rise and fall quickly.
Conventional mutual funds may be more appealing to buy-and-hold investors. The $100 million Midas Fund (MIDSX), which is highly concentrated in mining stocks, saw significant inflows last week, although manager Tom Winmill wasn't specific. "Gold is not a way to maintain capital appreciation, but it's a good way to preserve wealth," he says.
2. Buy stocks: Another way to play gold is to go straight to the source -- gold mines. While prices for physical gold are soaring, gold mining stocks have slumped. Winmill likes Freeport-McMoRan Copper & Gold (FCX, news), which is one of the world's largest mining companies. Year to date, the stock is up only about 5%, "even though revenues and earnings are exploding on the upside," Winmill says.
"A lot of people are thinking the world is going in reverse, but global gross domestic product growth -- if you include emerging markets -- is 7%. And a lot of that emerging-markets-growth has to do with infrastructure build-out, which demands copper," he argues.
Winmill also likes Goldcorp (GG, news) and Newmont Mining (NEM, news), which are some of the largest holdings in the Midas Fund. He sees a "Slinky effect" for mining stocks in the coming months -- "They'll bounce back and make up for lost ground as well," he says.
3. Buy hard assets: The upside of buying actual gold bars and ingots is that when the price of gold rises, the value of a gold block tracks the gains on an almost one-for-one basis, unlike other assets that track only the value.
"People want to put their money into hard assets, which retain a value when currencies lose value," says Tod McElhaney, the president of LaSalle Futures Group in Chicago.
But while physical gold has the most direct value, the downside is that it is also more difficult to offload should investors want to let go of the asset.
One way to buy physical gold is EverBank's pooled gold and silver accounts, which let you pool your investment with those of other investors. The advantage is that you don't have to cough up huge sums -- the minimum investment is $5,000 -- nor do you have to pay storage, delivery or annual fees to stash your gold. The ideal investor? "Someone who doesn't have an apocalyptic view that they need to have it in (their) backyard," Trotter says.
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One way to buy physical gold is EverBank's pooled gold and silver accounts, which let you pool your investment with those of other investors.
The physical commodity is the only way to really own anything in the long run. Everything else is just paper created by Wall Street investment banks.
I prefer black gold (oil) to the shiny stuff as an investment, mainly as a hedge against my long term future consumption of gasoline and energy. But, therein lies a problem, how to store and hold it efficiently and cheaply. I wish some fund manager would work this out and form a pooled physical oil account for small investors. Better yet, the next time our government decides to sell a portion of our strategic oil reserve, how about they let the average Joe Plumber in on a piece of the deal?
Yep, at the end of the day Gold will be the reserve currency because governments can't manipulate it. Inflation is theft “we the people” are tired of losing our purchasing power! By the way what's the over/under on Nixon roasting in hell right now?
gold will gain strength thru this recession. there are indicators out there it will reach $2000 by
next 2012. european countries are in worst shape. greek and spain and france all have the same problem. money loosing its paper value. the domino effect will crumble more countries before it will stabilize. united states and many nations by lowering interest rates to counter the bad economic times with stimulus money has artificially lowered the value of money. in short what we can afford today will go up 30 % more. since the money is devalued.
people will flock to preserve value of their money by shifting it to gold since it looks better investment for shorter time. since housing market is gone down, property values have gone down. even the stock market is going through ups and down. so investors will move it to silver and gold. world wide gold has high demand. currency trading is loosing grounds that's another indicator. none of progressing countries have solution to improve their economy. so for 2012 thru 2013 feds are not going to raise interest rates, which makes it more better for gold stocks. till then gold will hold its value. oil prices will go up soon since they will put control on oil. until demand drives it up.
for short period investing in gold is better. not for long term. the time to dump gold will when the economy turns around. or when feds raise interest rates.
As long as onces of gold have a "dollar valuation", and people buy and sell for that reason, then the answer to gold as an investment is obvious. It is a commodity, you don't actually own it unless you have it in your possession. A commenter below has already noted that you rely on the trust of someone else who actually has it. So much for "doomsday" thinking.
As a commodity for investment, with the end result of dollar speculation, it is high currently. Given it has a certain "doomsday" speculation component that may artificially raise it's perceived value, unlike a "share" of a corporation for instance, then it is probably very risky right now.
But that same "doomsday" speculation component of its demand may serve to hold it higher as well.
You have to make your own decisions, but if you look at what happened to gold valuation during the U.S. depression in the 30's, then you will see it decreased to only 20% of its dollar value. Different times and different circumstances to be sure.
I think it over-valued right now, for what my opinion might be worth; which is nothing.
Gold prices will climb to between $2500 and $3000 bt the 2012 elections and will then either drop a small amount and level off or continue to climb. As long as Obama is in office the dollar will decline and Gold will rise.
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