With Prices Soaring Gold Bullion is Suddenly in High Demand

The world's wealthiest people are moving their money out of stocks and into gold bullion, sucking the yellow metal up by the ton in some instances.

Fears that the dollar will continue to lose value in the wake of the U.S. Federal Reserve's quantitative easing have boosted the appetite for physical bullion as well as for mining company shares and exchange-traded funds (ETFs), UBS AG (NYSE: UBS) executive Josef Stadler told the Reuters Global Private Banking Summit.

"They don't only buy ETFs or futures; they buy physical gold," said Stadler, who runs the Swiss bank's services for clients with assets of at least $50 million to invest. "We had a clear example of a couple buying over a ton of gold ... and carrying it to another place," Stadler said.

At today's prices, that shipment would be worth about $42 million, Reuters reported.

UBS is recommending top-tier clients hold 7% to 10% of their assets in precious metals like gold. The price of gold hit yet another record high on Wednesday soaring as high as $1,351 an ounce. Gold is on track for its tenth consecutive yearly gain.

Money Morning Contributing Editor Martin Hutchinson first tipped investors off to the pending surge in gold prices three years ago in late October 2007. Since then he has suggested a number of potential investments for investors interested in jumping on the bandwagon.

The SPDR Gold Trust (NYSE: GLD) ETF is chief among Hutchinson's recommendations. With a total value of $50 billion, GLD is now the largest physically backed gold ETF in the world, holding 1,300 metric tons (or 42 million ounces) of the yellow metal in a London vault. GLD shares, which represent one-tenth of a gold ounce, can easily be bought and sold by investors through their brokerage account.

But remember, ETFs don't give you gold, per se; they give you a claim on gold. It's not quite as safe as owning physical bullion, but it's a whole lot better than nothing - and you don't have to worry about shipping or storage.

Investors who are determined to get their hands on something tangible must purchase bullion or coins through a dealer.

A few dealers that have an established reputation are:

  • Kitco.com: Premiums are fair and the selection is usually quite good. They have offices in both New York and Montreal.
  • Asset Strategies International Inc. (assetstrategies.com): This dealer is located in Rockville, MD. Asset Strategies also offers gold storage options outside U.S. borders.
  • Camino Coin LLC (caminocompany.com): Burlingame, CA.
  • American Precious Metals Exchange (apmex.com): Oklahoma City, OK.
  • The Tulving Co. (tulving.com): Newport Beach, CA
  • Gainesville Coins (gainesvillecoins.com): Lutz, FL.

"There's nothing like holding a gold coin or gold bar in your hands. This is the oldest and most direct form of gold ownership," said Peter Krauth, a well-known commodities expert who is also the editor of the Global Resource Alert. "Bullion dealers are the easiest way for most investors to buy smaller quantities of gold. Do some homework to check them out before you buy."

Most dealers charge premiums of about 3% to 6% above the "spot" price for physical gold. But you'll pay much more if you wait for the economy to tank before stocking up.

"When things get hairy - as they were back in November 2008, in the depths of the global financial crisis - premiums can go up by three to five times, with some dealers charging 10% to 15% above spot," says Krauth. "Obviously, you'll be better off buying gold on price dips and under calmer circumstances."

The London Bullion Market Association - at its annual conference recently - projected that the "yellow metal" would advance to $1,450 in the next year.

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