Your Money: Going for the gold to improve portfolios

Gold coins at a jewelry store in Tokyo. Interest in gold is growing as stocks get even more volatile. On Wall Street, the Dow plunged 519 points, wiping out Tuesday's gains. Story, A1.
Gold coins at a jewelry store in Tokyo. Interest in gold is growing as stocks get even more volatile. On Wall Street, the Dow plunged 519 points, wiping out Tuesday's gains. Story, A1. (JUNKO KIMURA / Bloomberg News)

It's a perennial favorite of some. Others are interested but don't know where to start. Here are some tips.

Posted: August 11, 2011

Gold always generates an emotional debate between opposing true believers: people who love gold (a.k.a. gold bugs), and people who deride the yellow metal as a "barbarous relic." But with America's excessive debt and negative real interest rates, gold lovers continue winning the argument.

After Federal Reserve Chairman Ben Bernanke promised Tuesday that interest rates would stay near zero until mid-2013, gold soared yet again as investors raced to the precious metal and gold-mining shares as a haven against inflation and a weakening dollar and as a way to protect their savings.

Continued low rates mean it's still a good environment for more appreciation in gold's price - even after the metal rose to a staggering $1,800 an ounce before dipping a bit at the end of trading Wednesday.

So how do mom-and-pop investors include gold in their portfolios?

There are a few ways: Buy bullion outright and store it (beware fakes and theft). Buy exchange-traded funds that own bullion on your behalf (watch out for tax consequences with these funds). Buy mining shares traded in the stock market (that have so far lagged the metal's price).

Among the popular bullion options are American Eagle coins. U.S. Mint statistics illustrate that sales haven't exploded as expected. Fewer one-ounce American Eagle coins were sold in 2010 than in 1999, when Americans snapped up roughly 1.4 million of the popular gold coins to brace against potential Y2K chaos, according to a July-dated Erste Group research report.

You can find a list of Eagle dealers online at the U.S. Mint (www.usmint.gov).

Other countries have their own gold coins: Canadian Maple Leaf coins and South African Krugerrands.

Exchange-traded funds and precious-metals mutual funds are other ways to add precious metals to your portfolio. Most advisers wouldn't recommend having more than 5 percent to 10 percent of assets invested in gold and silver. You're using most exchange-traded and mutual funds to bet on the direction of gold prices, not to cash them in for bullion.

More investors are seeking out the metal itself instead of paper-denominated gold assets. According to the World Gold Council, total demand increased in 2010 by almost 10 percent to 3,812 tons, or $43.7 billion.


Erin Arvedlund is a finance reporter and Philadelphia resident. Contact her at erinarvedlund@yahoo.com or 1-646-797-0759.

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