How to Invest in Gold

Gold prices are soaring and interest has never been higher in how to invest in gold. Visit our Gold prices section for the latest coverage.

The following is a transcript of "Money Girl's Quick and Dirty Tips for a Richer Life," a podcast from QuickAndDirtyTips.com. The audio program is available via RSS feed here and at TheStreet.com's podcast home page.

Hello and welcome to Money Girl's Quick and Dirty Tips for a Richer Life.

Today's topic: how to invest in gold.

Two episodes ago, I explained how gold acts as the anti-dollar, meaning that its price tends to go up as the U.S. dollar goes down. Since 2001, the U.S. dollar has been losing value and the price of gold has been going up. It was $270 per troy ounce in early 2001 and is now, in November 2009, gold prices are over $1170 per troy ounce.

Why Gold Holds Value Over Time

The supply of gold is constrained, which helps gold hold its value. The gold supply increases very, very slowly as more gold is mined. Gold acts as a hedge against inflation and a store of value over time. In ancient Rome, a single one-ounce gold coin could buy a quality toga, a pair of sandals, and a belt. Today, the same is true: a single one-ounce gold coin is about $1170, enough to buy a good quality suit, shoes, and a belt and have cash left over.(1)

If you think that we'll experience more inflation ahead and that the dollar is likely to continue to lose value, you might be contemplating how to put a portion of your portfolio into hard assets, such as gold.

But how does an ordinary person invest in gold?

Gold ETFs

One of the easiest ways to invest in gold is through an exchange-traded fund, or ETF for short. You can think of an ETF as a mutual fund that you can trade like a stock. I'll explain more about ETFs and some of their advantages over mutual funds in a future episode.