How to Buy Gold

This month Kim highlights how to buy gold, spot stimulus scans and protect your identity.

By Kimberly Lankford, Contributing Editor

From Kiplinger's Personal Finance magazine, May 2009

I'm interested in investing in gold. It seems to be one of the few things that has been doing well during the bear market. What is the best way for an individual to invest in gold? -- Cindy Reed, Rockford, Ill.

Although some advisers dismiss gold for its association with perpetual doomsayers, there are perfectly respectable reasons to add some to your portfolio. Gold can provide a hedge against inflation and a falling dollar. Neither of those has been a problem of late, but both are likely to cause headaches long term. And gold prices tend to move in separate cycles from stocks. In 2008, U.S. stocks lost 37% while bullion gained 5.5%.

As of early March, gold, at $938 an ounce, was only an ingot's throw from its record-high price of $1,030, and bullish sentiment was running high. Gold prices may have peaked for the near term, but even if they haven't, expect a wild ride. "Many people are not aware of the enormous volatility of commodities," says Axel Merk, manager of the Merk Hard Currency fund. "So you need to either have a strong stomach or take a small position." A 5% stake, at most, is plenty.

Although several mutual funds have "gold" in their names, you won't find any with much more than 10% of assets invested in the metal itself. That's because mutual funds, by law, must earn at least 90% of their income from securities, and commodities don't fall into that net. So most "gold" or "precious metals" funds invest predominantly in the stocks of mining companies. The simplest way to get unadulterated exposure is through an exchange-traded product. SPDR Gold Trust (symbol GLD) looks and acts much like an exchange-traded fund, but it's set up as a trust because shares represent ownership of physical bars of gold stored in the vaults of HSBC Bank USA, the fund's custodian. Each share claims ownership of a bit less than one-tenth of an ounce of gold -- the Trust sells gold periodically to pay for expenses, so the actual amount each share owns shrinks by about 0.4% every year. From the fund's inception in November 2004 through March 6, Gold Trust gained 19% annualized.

If you want to buy gold in a more tangible form, you can buy bullion online -- just be sure to go through a reputable site, such as Blanchard's (www.blanchardonline.com) or Superior Gold Group's (www.gold101.com). But you may face delivery delays because both companies have had trouble keeping up with heightened demand. Expect to pay 6% to 10% above spot market prices, which you can find at www.kitco.com.

The U.S. Mint lists dealers on its Web site at www.usmint.gov/bullion. However, none are affiliated or authorized by the Mint, so you'll have to do your own due diligence. You'll also need to worry about insurance and storage. But owning physical gold may have some nonmonetary rewards. Says John March, chief technical officer of Superior Gold Group, "Sometimes I get it all out and put it on the floor. My grandkids love to look at it."

Stimulus scams.
I've been seeing ads suggesting that the government will be sending people big checks, usually in amounts over $12,000, as part of the stimulus. Is the Treasury really going to be sending checks of this size? -- Shepard C. Willner, Arlington, Va.

Nope. Scam artists started to devise stimulus-related schemes as soon as the law was passed. The Federal Trade Commission, Better Business Bureau and FBI are all warning people that these scams come in several varieties.

With the con you mention, the ad usually says that you can order a CD or access a special Web site that will show you how to get a $12,000 government grant -- if you make a small credit-card or debit-card payment. But read the fine print and you'll discover that you're also signing up for recurring charges on your card. The BBB, which has received hundreds of complaints about such sites, found that people who signed up for this advice were charged as much as $69.95 every month.

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