Why Gold's Gleaming

At the end of the day, the price of gold, like anything else, goes up when buyers are more aggressive than sellers, particularly when supply is constrained. Whether you think marginal new demand is coming from central banks and private citizens hedging against incipient inflation, or from the jewelry aspirations of China and India's swelling middle classes, the bottom line is that the long-term trend is up, even if there's a long lull in the action before the next leg higher.

There are at least four ways to take action. The most direct way to go long or short gold is to open a futures trading account at either a major commodity trading firm such as Refco or an independent firm such as Prospector Asset Management in Illinois, which is run by industry veteran Leonard Kaplan.

The advantage of buying or short-selling futures is that you are not dependent on the whims of mining company executives' hedging or management skills, or on local permitting problems or labor disputes. You can make a pure two-year bet on the direction of gold by putting up as little as 3% of the value of your account: You could buy one contract, which is 100 ounces -- controlling $46,600 worth of physical gold -- for as little as $1,350. Now that's leverage.

Moving down the risk spectrum, you could buy the shares of a small-cap mining company with good prospects. Scotia Capital analyst Michael Durose has outperform ratings on so-called "junior gold" outfits such as Golden Star Resources(GSS Quote), which has West African properties, and Agnico-Eagle Mines(AEM Quote), which mines in Quebec and has programs in Mexico and Finland.

Next come the larger mining companies, such as Newmont Mining(NEM Quote), Barrick Gold(ABX Quote) and Placer Dome(PDG Quote), which tend to go up and down together, with a slight edge given to the first two by most analysts.

And finally, you can buy shares of gold-tracking exchange traded funds, such as StreetTracks Gold Trust(GLD Quote), or mutual funds such as Fidelity Select Gold or Tocqueville Gold.

Whichever you choose, keep in mind that buying or selling gold is just a trade like any other -- not a mission, or even an investment. Don't try to earn a bronze star for heroism if it goes against you.