COMMENT
Four Ways To Invest In Gold

By David Kuo (TMFDragon)
October 14, 2005

Gold rose to an 18-year high of $477 an ounce this week as concerns about inflation sent investors flocking to the yellow metal. It seems that worries about surging energy prices plus the high cost of rebuilding hurricane-damaged regions of America have prompted some investors to seek solace in gold. Personally, I can't see how buying one of the most inert substances known to man helps, but if gold floats your boat here are four ways to invest in the yellow stuff.

Jewellery

Buying gold jewellery is probably the most usual way that consumers gain exposure to gold. But it's probably also the least efficient too, because when you buy gold trinkets you are also paying for the design and the labour involved in making them.

When buying gold jewellery try to buy pieces with the highest carat that you can afford. Remember, pure gold, which is also known as 24 carat gold, is usually stamped with a 24K somewhere on the ornament. But most jewellery that is bought for everyday wear in the UK is more likely to be 14K. This is sometimes called 585, which means it contains 14 parts gold and 10 parts of some other metal. (14 ÷ 24 x 100% = 58.5%)

Gold Coins

Gold coins are a better alternative to jewellery. They can be bought directly from the Royal Mint, which is a department of the government. Generally, gold bullion sovereigns sell for a hefty premium over their intrinsic gold value. The reason for this is because you are not only paying for the gold but also the workmanship and the rarity of the piece. For instance, a 2005 Gold Bullion Sovereign made from 22K gold alloy and weighing 7.99 grams, retails for £89.95. This is a premium of 30% over the value of its gold content.

Gold Trackers

Gold Bullion Securities (LSE: GBS) is a recent innovation that allows investors to own gold without having to take physical delivery. Each share in Gold Bullion Securities represents one-tenth of an ounce of gold and is currently worth $46.8. The gold shares are backed by gold bars, which are physically held in a London vault at HSBC.

The main advantage of GBS is that investors can buy gold-backed products through traditional share dealing accounts. Consequently, it is easy to mix gold with other assets such shares and bonds within the same share portfolio. What's more, because GBS can be traded as a share, buying or selling is only a mouse-click away!

Gold Miners

Finally, investing in gold miners is another way to get exposure to the gold market. The theory is that when demand for gold increases, gold prices should rise and gold miners should in turn reap some of the benefits. But the relationship may not always work smoothly because gold miners expend huge resources to extract just one ounce of gold. For instance, it cost Oxus Gold (LSE: OXS) $225 to produce one ounce of gold for which it received $338 an ounce last year. Consequently, a combination of high energy costs and lower gold prices could quickly wipe of profits.

Personally, I am not a big fan of gold but others may disagree. My main beef with gold is that its value hinges greatly on the whims of speculators, and what's more it doesn't generate an income. Additionally, there are few industrial uses for gold apart from jewellery making, and even there I can think of lost of suitable substitutes.

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