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If it's gold you want, here's how to get it

December 16, 2007|Tom Petruno | Times Staff Writer

Gold is one holiday gift that has kept on giving for the last seven years.

The metal's market price, which last month surged above $800 an ounce for the first time in nearly three decades, has risen every year since 2000.

It has trounced the U.S. stock market in that period, rocketing 190%, compared with a 26% total return for the Standard & Poor's 500 index.

After mostly being out of favor in the 1980s and 1990s, gold has found a new, and global, investor audience -- including the emerging rich in booming Asian economies.

Fresh interest in gold also has spawned an array of gold-related securities, providing more options for people who want to own the metal without having to take physical possession of it.

Yet professional financial advisors often try to discourage their clients from gold investing in any form. Many say they don't believe it has a place in a modern portfolio.

In part, gold and other precious metals -- platinum and silver -- suffer from their long-standing image as havens for survivalists, conspiracy theorists and flakes.

"That's for the guys we don't want as clients," said Michael Glowacki, head of financial planning firm Glowacki Group in West Los Angeles.

Some fans of gold, however, say the bad rap is outdated and ignores the metal's powerful performance in this decade.

Martine Pham, a 45-year-old Bay Area investor, says she likes gold as a way to protect her purchasing power if the U.S. dollar continues to lose value, deepening its slide of the last six years.

But she also says she was drawn to the commodity in recent years by basic investment analysis.

"If you just look at it based on supply and demand, I could make a good fundamental case for the price to go up," Pham said.

Some individual investors say they simply consider gold to be a modest bit of insurance for their portfolios of stocks and bonds.

"In a worst-case scenario, you might be glad you had it," said Orvis Adams, an 82-year-old Los Alamitos investor who said his gold holdings amounted to less than 2% of his total investment mix.

If you're thinking about adding gold to your portfolio, how best to do it?

Here's a primer on the pros and cons of four common ways to invest in gold:

Gold bullion

Coins and bars from government or private mints are the classic way to own the metal itself -- and also the most cumbersome.

Coin dealers like to say that nothing compares to the weighty feel of real gold, one of the heaviest of the elements.

There's a "warm, fuzzy feeling" people get when they hold a gold coin in their hand, said Ken Edwards, a partner at California Numismatic Investments in Inglewood.

That's part of the marketing, of course. And government mints have tried to outdo one another in the last two decades in designing coins to catch the public's eye -- and bring in revenue from mint sales.

Thirty years ago the South African Krugerrand had the global gold coin market largely to itself. Now, the Krugerrand competes with the American Eagle, the Chinese Panda, the Canadian Maple Leaf and other government-minted coins.

One current favorite of some coin dealers is the Austrian Philharmonic, which on one side is adorned with the images of musical instruments including the harp and the violin.

Ultimately, gold is gold: The value of a minted coin depends mostly on its weight and the market price of the metal, plus the dealer commission (the markup or markdown, depending on whether you're buying or selling).

Dealer commissions typically range from 2% to 4.5%, depending on the coin. So it's worth shopping around.

The benchmark price of gold in New York futures markets Friday was $793.30 an ounce.

For 1-ounce coins, California Numismatics on Friday quoted a selling price of $826 for the American Eagle, $821 for the Canadian Maple Leaf and $816 for the Krugerrand.

All of the coins contain 1 ounce of gold. But some, including the Krugerrand, contain small amounts of alloys, such as copper, to add strength (because gold is relatively soft). Others, including the Maple Leaf and the relatively new American Buffalo, are virtually pure gold.

It's a matter of personal preference, Edwards says. "Some people just prefer solid gold."

Some investors also prefer gold bars to coins. The bars, in sizes as small as 1 gram, also are produced by government and private mints.

Michael Carabini, who manages gold dealer Monex Precious Metals in Newport Beach, sells bars and coins. But he recommends coins for most investors because they are easier to sell, he says.

"The liquidity is better with coins," he said, in part because they're easily recognizable around the world.

Besides 1-ounce gold coins, some mints produce smaller sizes, down to one-tenth of an ounce.

But you may pay a bigger percentage premium to buy smaller coins, and dealers may charge a bigger markdown when you sell, compared with 1-ounce coins. The reason: Smaller coins trade less frequently.

"On a typical day, I'll trade 100 times more 1-ounce coins than smaller coins," Edwards said.

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