NEW YORK (
popped $17 Thursday, which has many investors wondering if it's too late to
Gold prices -- which are trading at $1,216 an ounce -- have climbed more than 8% year to date, with many analysts predicting a big rally in September. Frank Holmes, CEO of U.S. Global Investors, says gold prices historically move 2.5% higher as India and China enter their wedding and festival seasons, which boosts gold jewelry demand.
Many predict analysts
can rise to their inflation-adjusted price of $2,300 within a few years. Others like author Mike Maloney argue that gold will cover all the money in circulation, including credit, and climb to $15,000 an ounce. Some are more conservative. Scott Redler, chief strategic officer of T3Live.com, is looking for $1,300 gold while James Rogers is looking for prices at $2,000.
Despite intermittent profit-taking as investors look to sell gold to raise cash, the trend points to long term four-digits prices. "Every day we stay above $1,000 the stronger that floor becomes," says David Morgan, founder of Silver-Investor.com. "I just don't see gold with all this going on in the markets right now, worldwide, globally getting below the $1,000 level. I think
high prices are there to stay."
Not all analysts are gold bugs. If you take out the speculation in gold, many analysts believe gold is worth $800 an ounce.
Michael Crook, vice president and strategist at Barclays Wealth, believes that prices will fall to $800 once the crisis premium comes out of the market, and investors buy equities rather than gold.
Regardless of gold's price range, most portfolio managers recommend an investor have 3%-10% in gold. More bullish managers recommend an allocation as high as 20%.
There are many ways to buy gold. For most, investing in gold isn't a quick trade, but insurance. It's a hedge against inflation, currency debasement, and global uncertainty. Here are the top four ways you can invest.
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.
Gold exchange-traded funds are a popular way to have gold exposure in your portfolio without the hassle of storing the physical metal. First, you can invest in one of three physically backed ETFs, which track gold's spot price.
The most heavily traded ETF is
SPDR Gold Shares
, which has $50 billion in net assets. The gold ETF has 1,286 tons of gold and saw record inflows as fears ballooned over Europe sovereign debt fears and a weak U.S. economy. The stock is up 8.06% year to date. Paulson & Co., run by legendary investor
, is the largest holder of GLD with more than 30 million shares.
iShares Comex Gold Trust
recently lowered its fee to 0.25% making it the cheapest gold ETF.
The newest gold ETF is
ETFS Gold Trust
, which launched in September 2009. This gold ETF actually stores its gold bullion in Switzerland, which gives investors access to different types of gold.
For each share of these ETFs you buy, you generally own the equivalent 1/10 an ounce of gold. If investor demand outpaces available shares then the issuer must buy more physical gold to convert it into stock. Conversely, when investors sell, if there are no buyers, then gold is redeemed and the company must then sell the gold equivalent.
Gold ETFs are not owned for leverage, but simply as a vehicle to own gold. There is the possibility of redeeming shares for physical gold, but that arrangement is conducted with brokers and is typically more difficult.
If you want the opportunity of redeeming your shares for gold, another option is
Sprott Physical Gold Trust ETV
, which launched in February. This
closed-end mutual fund
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
Market Vectors Junior
is a basket of large-cap mining stocks. Its top three holdings are
is up 4.1% year to date.
Its little brother,
, is a basket of small-cap mining stocks that are in the early development stages of finding new gold. These companies generate 50% of their revenue in gold or silver, have the potential to make over 50% of their revenue in the precious metals or invest mostly in gold and silver. They all have market caps of $150 million or more and have traded at least 250,000 shares per month for six months.
Its top three U.S holdings are
Coeur D'Alene Mines
. The ETF is up 6% year to date.
If you want more risk, try exchange-traded notes, debt instruments that track an index. You give a bank money 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
DB Gold Double Short ETN
DB Gold Short ETN
DB Gold Double Long ETN
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 principle protection. You can lose all your money.
A riskier way to invest in gold is through gold-mining stocks. Mining stocks can have as much as a 3-to-1 leverage to gold's spot price to the upside and downside. For example, John Embry, chief investment strategist at Sprott Asset Management, predicts that gold prices will pop 30% in six to nine months and that gold stocks could rise over 60%.
Gold miners are risky because they trade with the broader equity market. Some tips to consider when picking gold stocks are to find companies with strong production and reserve growth. Make sure they have good management and inventory supported by either buying smaller-cap companies or by maintaining consistent production. Global gold production has been declining since 2001, and big- cap miners keep their gold reserves flush by buying or partnering with small-cap companies, which are in the exploration or development stage.
As gold prices rise, gold companies can make more for every ounce of gold they produce, but their net profits depend on their cash costs, how much it costs them to produce an ounce of gold. Those factors vary from company to company and are subject to currency issues, energy costs and geopolitical factors.
Another factor to consider when picking gold stocks is how quickly the company will benefit from higher prices.
, a miner in Africa, is almost 100% correlated to gold prices. CEO Mark Bristow says that the company benefits from gold prices in almost two days.
There are many ways to invest in gold if prices head to $1,300 or slip back to $1,100. An investor can own gold for leverage, safety or hard cash, but regardless, many traders call gold a portfolio must.
Written by Alix Steel in New York
Alix joined TheStreet.com TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.