What's Up (or Down) With Gold?

07/04/2017 10:15 pm ET

Gold once made headlines as a safe haven in uncertain times. Now it is considered mostly a trading commodity, a portfolio diversification or a refuge for doomsayers. In fact, gold is so out of fashion that it might be time to take another look at the gold market.

One thing we can say for sure: Gold prices are volatile. Twice in recent weeks, gold prices dropped nearly $20 an ounce in minutes. The first decline was rumored to be caused by a massive sale of gold by Venezuela. In fact, Venezuela has sold billions of dollars in gold reserves in recent years to keep its economy running. But they’re desperate sellers — and not the “smart money.”

Before you decide to own gold — whether gold stocks, mutual funds, ETFs, coins or bullion — check your own mentality and reasons for buying first. If you’re a speculator, understand the price risks. If you’re trying to hedge your stock portfolio, remember that in the financial panic of 2008 gold prices initially declined along with stocks. And if you’re looking for long-term gains, remember that no recent financial scares (think Brexit) have brought gold even remotely back to its highs of $1,900 an ounce reached in the summer of 2011.

That said, and with gold trading just over $1,200 an ounce at this writing, here are a few ways to buy gold, starting with a new ETF that might pique your interest.

Exchange traded funds. There are many gold ETFs, some that hold fixed portfolios of stocks of gold mining companies and several that actually are based on the price of bullion itself. The most widely traded bullion ETF carries the symbol GLD, and its price instantly reflects underlying bullion prices.

ETFs that own shares of gold mining companies don’t react in lockstep with gold prices. These companies reflect the “business” of gold mining, including costs for developing mines and their own efficiencies, as well as the dividends they pay. These ETFs are listed on major exchanges and trade throughout the day.

A new “managed” ETF, which launched on the NYSE in recent weeks, was created by the experts at U.S. Global Investors. Its symbol is GOAU (test yourself to understand what these letters symbolize), and it is designed, according to its prospectus, to capture the performance of companies engaged in the production of precious metals, either through active mining or companies owning passive royalty streams from income-producing mines. Every quarter, the portfolio will be adjusted using a proprietary model designed to reduce volatility. Information is available at USFunds.com.

Gold Shares Mutual Funds. Every major mutual fund company, including Fidelity, Vanguard, American Century and US Global Investors, offers a traditional managed mutual fund specializing either in gold or gold and other precious metals. You don’t need to pay a commission to buy these funds, and annual management costs are relatively low. However, you can only purchase and sell fund shares at the day’s closing fund prices.

Gold coins and bullion. There are two types of gold coins — those that trade strictly for their gold content (plus a small markup for the cost of handling), and those that trade based not only on their gold content but also on their rarity. The latter are called collector coins. When buying gold coins, deal with a reputable dealer, take delivery of your coins, and store them safely in a bank vault.

For more information on gold prices, consult Kitco.com. And for a reputable dealer, search at the website of the American Numismatic Association, Money.org.

Some say gold will be eclipsed in its role as safe haven for money by electronic money, specifically Bitcoin and its competitors. Blockchain technology will definitely transform our global financial transactions in a positive way. But Bitcoin itself is a more volatile commodity than gold.

Let me paraphrase the wisdom of James Dines, a well-known “gold bug” of the 1970s, who famously said: “When my girlfriend asks for a bracelet made of paper, I’ll know paper is as good as gold!” Ditto Bitcoin! And that’s The Savage Truth.

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