"He loves only gold" - Goldfinger

Gold is an interesting commodity. You can’t build cars, ships or buildings with it. But it makes great jewelry or sharp looking dentalware. For thousands of years gold has been an invaluable asset. And the way the future looks, it always will.

There are several ways to invest in gold without requiring an armored truck to drop a bag of coins off at your door. Before we look at investment alternatives lets review why gold may be worthy of your portfolio.

In times of war, inflation, dollar devaluation and mass pandemonium the public buys gold. Stocks and bonds will lose value during the "End-of-Days". Cash will lose value from inflation and currency devaluation.

Gold is considered a flight to quality. It’s an asset you can sell to anyone anywhere in the world. Its value is based on supply and demand....and demand is up.

As of November 10, 2007 gold was $835.20 per ounce. Is the price rising, is it flattening? Here’s the ten year history.

Ok. So we have an uptrend. The next thing you might be wondering is; are we due for a drop. Your guess is as good as mine. A chartist might tell you yes. Prices do not climb like that without going through a correction.

On the other hand, at the beginning of 1980 gold was trading at over $850 per ounce. In inflation adjusted terms, that would be over $2,000 an ounce today. Based on today’s price, we still have a long way to go. There are factors that may prevent a steep rise to $2,000 per ounce. Psychological barriers may be one of them.

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John Hill, director of metals research for Citibank feels gold will break over $1,000 per ounce over the next several years. Why not. Oil is headed towards $100 per barrel.

Speaking of oil. Many economists believe gold and oil prices have a correlated relationship. The general rule is an ounce of gold is about ten times the cost of a barrel of oil. I’d say that correlation is not far off. Mining gold is an energy intensive process. Higher oil prices affect the cost of this precious metal.

To properly confirm a bull market in gold we compare it against all currencies. Not just the falling value of the U.S. dollar. This is how gold stacks up against global currencies.

What are some factors contributing to the price increase?

Demand and Supply : Gold prices are correlated to supply and demand. Right now demand outweighs supply. In addition to year after year consumer interest, there is a lag time in mining and production. It takes a while before a mining company extracts gold from the ground and puts it into fabrication.

Demand for gold is building in China and India. Ownership of this commodity is considered a sought after investment. Increasing interest in gold ETF’s has taken some of this commodity off the market. And to top that off, Central Banks in recognition of the rising value are increasing their gold reserves.

The U.S. Dollar : During a declining dollar and rising prices, investors use gold as a hedge against inflation.

The Fed might be working on inflation, but the dollar is on its own against other currencies. Gold keeps its purchasing power.

Debt : The U.S. owes more money now than any time in history. We’ve got wars to pay for, countries to support, social security and a whole list of people to pay off. As long as China keeps buying U.S. Treasures we should be Ok.

Of course this whole argument for gold could be for naught if these things happen: The dollar begins to strengthen and the economy gets back on track. Anything’s possible.

Gold ETF's: ETF's are a great way to trade precious metals. You can find excellent funds and you don’t have the hassles of owning the commodity outright. Check out iShares COMEX Gold Trust (IAU)

Stocks & Mutual Funds : It’s about finding the right stock or mutual fund. Precious metal specialty funds are up over 30% this year. But you must take into account the added expenses when you go “specialty fund.”

Regarding stocks, stick with blue chip mining companies. Junior minor companies are risky.

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Gold Linked CD : Companies such as EverBank Financial offer a 5 year CD with principal protection. The returns are linked to the average spot price of gold over a 5 year period.

Gold Coins: Buying gold coins now can be a good investment. But you must know what you’re buying and do it from a reputable dealer. You don’t want to go home and find a chocolate coin inside.

The future for the U.S. economy is not covered with rose petals. As long as this remains the case, the future for gold as an investment.....looks bright.

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