The Four Main Vehicles for Investing in Gold

Paper Gold: Essentially paper representations of the gold price. These include futures contracts, exchange-traded funds, pool accounts and certificates. They provide exposure to the gold price, however there are counter-party risks involved. Basically you only own the promise to give you the metal if you ask for delivery.

Physical Gold: Physical gold is sold in the form of bars, bullion coins and rare coins (see below). Modern bullion coins retail for between 2% and 4.5% above the spot gold price whereas gold bars usually have a premium 1 or 2% less. Physical gold is only suitable for a long term buy and hold strategy and there are insurance and storage costs to consider.

Numinastics: Rare coins before 1933 are of a very different investment psychology, there is a blend of a collector sentiment (similar to the art market) and investor speculation. Strong collector demand makes rare coins a better hedge against inflation however you have to consult coin dealers to ascertain value and it can have the charcteristics of a runaway train at its extremes.

Gold Mining Stocks: More risky than owning bullion itself but they do provide leverage against the price of gold. Gold mining stocks are clearly a stock component of your portfolio and are affected not only by the gold price but also by the price of the stock market. The HUI and XAU are the main indices for the gold miners. Divergence is the signal that everbody is looking and waiting for, namely rising gold stocks in a declining stock market.

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