Gold Is Cheap Again: 5 Ways to Get It Into Your Portfolio

Gold bars are cheap again
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More than nearly any other investment, gold inspires strong opinions among investors.

On one hand, superinvestor Warren Buffett has said that buying gold merely locks up your money in an asset that in his words is "neither of much use nor procreative."

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On the other side of the coin you have advocates arguing that gold is the best choice to preserve purchasing power when central banks are pouring huge amounts of money into the world financial system, posing a threat to the value of ordinary currencies.

The debate over gold will never end, but what's indisputable is that gold prices rose more than 600 percent from mid-1999 to mid-2011, topping out around $1,900 an ounce, but have fallen by about $300 an ounce in the two years since.

If you're inclined to take advantage of what gold bugs might call a bargain opportunity, here are five ways you can add gold exposure to your investment portfolio.

Gold Is Cheap Again! 5 Ways to Get It Into Your Portfolio
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Gold Is Cheap Again: 5 Ways to Get It Into Your Portfolio

What's involved: You can buy gold bars or coins from coin dealers across the country. Many coin dealers operate  online businesses that will ship gold directly to your home.

Pros: You have the gold in your possession, avoiding any risk of third-party misconduct that other methods of investing in gold expose you to. Some investors also enjoy the coin-collecting aspect.

Cons: You'll pay a markup to the current spot price to buy physical gold and might have to accept a discount when you sell it. Also, you have to find and pay for a safe place to store your gold.

What's involved: Some coin dealers offer pool accounts, which allow you to buy gold, but store it with the dealer rather than taking delivery. At any time, you can either sell the gold back or arrange to have the dealer send you physical coins or bars corresponding to your pool-account position.

Pros: You get all the benefits of owning gold, but the dealer remains responsible for its care. You avoid dealing with shipping and insurance costs, and have the assurance that it's held in a secure facility. The premiums for buying and discounts for selling also tend to be smaller than with physical gold.

Cons: To take possession of the gold, you'll have to pay shipping costs and other fees. You also have to trust that the dealer running the pool account is taking all the necessary steps to protect it from theft or other dangers.

What's involved: Gold futures contracts allow you to buy the right to take delivery of gold at a specified future date. Futures contracts tend to track the changing spot price of gold, paying you profits when prices rise and losing money when they fall. Most futures investors sell back their contracts before they expire, never taking delivery of the physical gold underlying the contract.

Pros: You get the potential financial benefits of owning gold without worrying about storing it. You also don't have to come up with the full value of the underlying gold, as futures contracts require only a small margin balance covering a fraction of the gold's total value.

Cons: Futures contracts are only available through specialized brokerage accounts, and there are commissions involved. Also, most futures contracts will be too rich for the blood of the average investor: A standard contract corresponds to 100 ounces, worth about $160,000 at current prices. You may have that much in your portfolio to invest, but putting it all into gold futures could be too much exposure to one commodity.

What's involved: Exchange-traded funds like SPDR Gold (GLD) own vast holdings of gold bullion. Each share of SPDR Gold has a value of just under a tenth of an ounce of gold, and those shares rise and fall with the price of gold bullion.

Pros: Gold ETFs take responsibility for storage and protection of the gold in their possession, saving you the hassle of owning physical gold.

Cons: Although many gold ETFs own physical gold, some  use derivatives rather than bullion. With those ETFs, you run the risk that the derivatives involved won't move in lockstep with gold prices, potentially causing you to miss out on a gold-price increase.

What's involved: Hundreds of public companies mine gold. When gold prices rise, they earn more for the gold they produce, so their value is closely tied to that of the yellow metal itself.

Pros: Unlike other gold-related investments, mining stocks can actually produce income. Some miners even pay dividends to shareholders.

Cons: Mining stocks don't always track the price of gold, as other factors such as labor disputes and production costs can cause them to suffer financial difficulties even when gold prices are high. Lately, gold-mining stocks have had far worse returns than bullion due to rising costs and falling profit margins.

Each of these five ways to add gold to your portfolio has pros and cons. But if you see the value of having gold among your investments, they're all worth considering to give you the gold exposure you want.

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