Sunday, November 1, 2009

How Much Gold Should You Own?

With gold recently soaring past the $1000 mark and making a new high over $1050, more than a few formerly-gold-averse investors have become more interested in adding precious metals investments to their portfolios.

Some have opted to buy the exchange-traded fund (ETF), the SPDR Gold Trust (GLD), though there are any number of reasons to avoid that route and invest in gold coins or purchase gold bullion directly, one of which is the pretty well-determined suspicion that the "Trust" doesn't actually hold or own as much actual gold as it would need to handle a rush of redemptions for investors wanting physical gold in their hands. The other reason is that the ETF doesn't match the moves made by the metal itself. Gold futures and spot prices haven't correlated to similar moves in the ETF.

That's why it is advisable to buy gold coin from a reputable dealer, either in person near your home or on the internet. Either choice is preferable to playing either the ETF or buying mining stocks. Physical gold - or silver or platinum - is easy to store, needs almost no care, and can be instantly converted to cash if necessary, without paperwork or tax issues.

How much a capable investor should hold depends on their needs. Younger, more speculative types may want as little as 5% of their portfolio in gold or silver coins or bullion, while older, more safety-oriented investors may want to hold as much as 20% of their portfolio in gold. In any case, it's an investment that should be part of everyone's diversification.

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