Most money managers advocate anywhere from 3%-10% in gold. More bullish managers recommend an allocation as high as 20%.
Gold is protection, insurance against inflation, currency debasement, and global uncertainty. Here are four ways you can invest.
1.Gold Bullion
Buy physical gold at various prices: coins, bars and jewelry. Some of the most popular gold coins are American Buffalo, American Eagle and St. Gauden's. You can store gold in bank safety deposit boxes or in your home. You can also buy and sell gold at your local jewelers. Other companies like Kitco.com allow you to store gold with them as well as trade the metal.
When you buy gold coins or bullion, avoid big premiums. You want to buy gold as close to the spot price as possible, or a 10% premium at most. The higher the premium, the higher the gold price will have to rise in order for you to profit.
Coins typically come from the national mint, where they are made and sold at a 4% mark up -- the retailer's margin is 1% to 3%.
To calculate the premium of a gold product, subtract the spot price from the price you are being quoted, divide that number by the spot price and multiply by 100.
Had you purchased a one ounce gold bar at Kitco.com for $1,225.90 -- using a spot price of $1,200 -- the bar has a 2.1% mark-up. This means that the gold price only has to rise 2.1% from spot price levels for you to break even on your investment.
There are other types of ETFs.
If you want the opportunity of redeeming your shares for gold, another option is Sprott Physical Gold Trust ETV (PHYS), which is a closed-end mutual fund that gives investors the option of trading in their shares for 400-ounce gold bars.
The fund can trade at a huge premium or discount to its net asset value at any time and has higher fees, making it more expensive to invest in. An investor can obtain physical gold on the 15th of every month, although the holder has to make transportation and storage arrangements.
There are also two other ETFs to consider. Market Vectors Gold Miners (GDX), a basket of large-cap mining stocks. and Market Vectors Junior (GDXJ), a group of development-stage miners. They both have market caps of $150 million or more and have traded at least 250,000 shares per month for six months.
3.ETNs
If you want more risk, try exchange-traded notes, debt instruments that track an index. You give a bank money for an allotted amount of time and, upon maturity, the bank pays you a return based on the performance of what the ETN is based on, in this case the gold futures market. Some of the more popular ones are UBS Bloomberg CMCI Gold ETN (UBG), DB Gold Double Short ETN (DZZ), DB Gold Short ETN (DGZ) and DB Gold Double Long ETN (DGP).
ETNs are like playing the futures market without buying contracts on the Comex. ETNs are flexible, and an investor can trade them long or short, but there is no principal protection. You can lose all your money.
