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Strategies For Investing In Gold


With the recent weakness in the stock market, many investors are flocking to the safety of gold, which continues to trade near record highs.

Economic instability has driven gold prices higher due to the rising national deficit in the United States.

And domestic investors aren’t the only ones buying gold. The rampant fears of insolvency in Greece and Portugal have led foreign investors to sell the euro and start buying up gold. While investors shouldn’t chase gold near record highs, gold does deserve a small place in your investment portfolio. Here are three ways that you can add a little gold to yours.

Buy Physical Gold

Gold has been on a tear recently, surging to over $1,250 an ounce. The traditional way of buying gold is to buy gold bullion bars or gold coins. While this is one way to add gold to your portfolio, it can be quite costly and is very illiquid. Most gold retailers sell gold at a significant markup to the current spot price. You could end up paying $1,500 to $1,600 dollars for a $1,250 one ounce gold bullion bar.

There is also the storage issue.

You will need to rent a safe deposit box or buy a safe to store your gold. You probably don’t want to spend a few thousand on gold coins just to bury them in your sock drawer. Besides, there are not too many places that you can go to redeem your gold bar. You can’t exactly walk into your local bank or credit union and sell your gold bar.

Buy A Gold ETF

Do you want to own gold but avoid the hassles of having to find a place to keep it? If so, take a look at a gold exchange traded fund. Gold ETF’s do their best to mimic the spot price of gold each day. The most popular of these ETF’s is the Spyder Gold Shares (GLD). With over $38.5 billion in assets, the GLD gives you an easy way to buy gold without having to physically store the product yourself.

Less popular ETF’s that provide the same exposure are the iShares COMEX Gold Trust (IAU) and the ETFS Physical Swiss Gold Shares (SGOL). Risk taking traders should take a look at the Powershares DB Gold Fund (DGL) which tracks the futures contracts on gold. Leveraged ETF’s like the ProShares Ultra Gold ETF (UGL) are only appropriate for daytraders since they amplify returns positively or negatively 200%.

Buy The Gold Miners

Investors looking for gold exposure might find their best bet is to buy shares of gold miners like Goldcorp (GG), Barrick Gold (ABX), or Newport Mining (NEM), Yamana Gold (AUY), and AngloGold Ashanti Ltd. (AU).

Gold miners are the biggest beneficiaries of increased gold prices and many gold stocks are trading at discounted valuations. Several mining firms such as Newport and Barrick have recently received upgrades from J. P. Morgan Chase, Deutsche Bank, and UBS. Investors can also get exposure to the miners by buying Market Vectors Gold Miners ETF (GDX).

Gold can be a solid investment for those looking for a hedge against inflation. A good rule of thumb to follow is that gold should only occupy a small portion of your portfolio. The most aggressive investor should have no more than 10 percent of their total portfolio invested in gold.

What do you think? Would you buy gold at its current price? Do you think that a bubble could be forming in the gold market?

Comments

  1. With the outlook of a second wave crisis about to happen in Europe and the USA, I don’t think that gold is going crash just yet. Definitely a buy for me.
    RD

  2. It’s just another bubble that is being pumped up and is way above its natural value. Someone important will hit the sell button and there will be a frenzy to sell while the prices & whole house of cards comes falling down. When this will happen? It may not be for a while… but I’d rather not worry about it.

    Make sure you don’t hold on too long or you’re going to end up getting burned.

  3. Gold represents fear in the market. When people are nervous, they buy gold. When they are happy, gold becomes worthless.

    Buy when the economy is doing well and sell at a time when people are afraid of the economy.

    I would say now would be the time to sell, but with cracks starting to form in the recovery, it could shoot up even higher. But if you bought during the Bush years, you could sell now anyway and still make a huge gain.

  4. My noggin is reeling from all this data.