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By Peter Krauth, Contributing Editor, Money Morning
Gold prices have quadrupled since 2000 - and that rise isn't slowing down. In fact, the yellow metal is climbing to new highs every day.
This is just the beginning of gold's meteoric climb. With soaring demand from Asia, the push for gold-backed currencies and rising inflation on the horizon, gold is projected to top $2,500 an ounce.
If you don't already own some gold, the time to buy is now... before you miss out on this historic bull market.
Read on to discover exactly how to participate in the gold rush happening right now. (When gold soars, so does silver. At least, that's how it used to be. But the price of silver has "decoupled" from the gold market. And silver could soar as high as $200 very soon. Our new silver report has all the details. Get it right here.)
There's nothing like holding a gold coin or bar in your hands.
It's the oldest and most direct form of gold ownership. In fact, in some cultures, people keep their entire savings in physical gold.
Bullion dealers are the easiest way for most investors to buy gold.
But do some homework to check them out before you buy. Under normal circumstances, expect to pay 3%-6% premiums above the spot gold price for physical gold (You can find the spot price at Kitco.com.).
But when things get hairy, like in the heat of the financial crisis, premiums can go up 3-5 times higher, with some dealers charging 10%-15% above spot. Obviously, you're better off waiting for price dips and calmer circumstances.
You can buy gold bars in a variety of weights, ranging from as small as one ounce to over 100 ounces. Just be sure you have a safe place to store your shiny new asset.
A couple of 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 (Canada).
- Assetstrategies.com: This dealer is located in Maryland. They also offer gold storage options outside the U.S.
Don't have a vault to store your gold in? You might want to look into paper gold.
There's no replacement for owning physical gold. But it's not always easy to store, and buying and selling it takes some extra effort. Luckily, gold ETFs have sprung up to fill the void.
One of the easiest ways to buy a claim on gold is the SPDR Gold Shares (NYSE:GLD). With a market cap of $35 billion, GLD is now the largest physically backed ETF in the world, holding 1,230 tonnes of gold 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.
Another option to acquire paper gold is through Perth Mint Certificates (PMC). Locked away in a vault and insured, this is the only government-backed bullion storage program, with the State of Western Australia standing firmly behind it.
You'll need to commit at least $10,000 to get started in PMCs. And, there are small, but reasonable, fees to obtain your certificate and trade your holdings. But, it's also a great way to gain some international diversification for your gold investments, by owning it outside of your home country. As a side note, Kitco and Asset Strategies also offer PMCs.
The third major way to invest in gold is through gold stocks. And here again you have a multitude of options.
The most important thing to remember is that with stocks come leverage and volatility.
That's great when gold goes up, but it can be less than pleasant on the way down.
The most common way to track gold stocks as a whole is through the Amex Gold Bugs Index (NYSE:HUI). This is an index of large miners operating around the world.
As for individual gold stocks, there are four main categories in descending order of risk: major producers, intermediate producers, junior producers, and finally junior explorers.
Major Producers churn out at least 1 million ounces a year, and include the world's largest gold miner, Barrick Gold (NYSE:ABX). With 138 million ounces of resources, and producing 7.8 million ounces annually, this is the undisputed leader.
Intermediate Producers are the next tier. They produce in the 200,000-1 million ounces range. With intermediates, you'll want to look for good geopolitical characteristics, as well as a decent anticipated growth profile. Many have multiple mines and reliable cash flow.
Junior Producers are sub-200,000 ounces of annual production, often sourced from a single mine. Here you'll want to aim for the potential to grow the company's production and resources over time through existing or new projects.
Junior Explorers are among the most volatile stocks around, but they come with moon-shot potential. Some have gold assets in the ground, while others are still looking. Their shares tend to trade on relatively low volume, which adds to their risk. But they also account for many discoveries of new deposits. Once sufficient gold's been found, some aim to become producers, while others look to sell that asset to a major, and then go on exploring.
Gold Stock Mutual Funds
The most conservative gold approach is to invest in a gold or precious metals mutual fund. This is the least direct way to buy gold, because, by law, mutual funds have to earn at least 90% of their income from securities. That means at most only 10% of the portfolio is allocated in physical gold.
We suggest you take a good look at the US Global Investors Gold and Precious Metals Fund (USERX). It's strictly limited to gold producers.
For a little more octane, consider the US Global Investors World Precious Minerals Fund (UNWPX), of which 80% is invested in producers and 20% in junior miners.
Hold Gold For the Long Term
The bottom line: If you don't own any gold yet, you're still in luck. Despite a great showing over the past 10 years, gold's still got a long way left in its long-term bull. In fact, one major gold driver, inflation, has only begun to rear its ugly head. So you haven't missed the boat.
And gold investors, whether they're seasoned traders or new buyers, should also be looking at the silver markets.
Silver is a much cheaper investment. And because of the lower price, gains can accumulate faster (A $10 increase in silver can mean 25% in gains. The same increase in gold would barely move the needle.).
And according to my calculations, silver prices could break $200 in the next few months - because of a massive scheme that involves powerful banks... questionable trades... secret informants... perhaps even the federal government itself. It's all converging into the biggest short sell in history. Here's my latest silver report with all the details.