‘Buy Gold!” We hear this phrase so much you’d think we were back in the great rush of 1849. In this economy, pawnshops and television commercials are constantly advising you to invest in this luminous precious metal. But with so many options for buying — and the price of gold at more than $1,600 an ounce — investing in gold is complicated. (Serious investors don’t go down to the pawnshop to buy 14-karat gold necklaces and bracelets.)

“We are in the 12th year of a bull market for gold, and it has an average annual return is 18 percent per year,” said John Corcoran, Oppenheimer Funds vice president, who specializes in gold and precious metals. “There are a lot of factors that drive that demand and different ways to invest.”

We talked to precious metal experts and financial advisers about what people should know as they think about investing.

Experts weigh in on how to invest

Investing in bullion: When most Americans hear about “investing in gold,” they think of purchasing the actual metal, which means buying bullion gold coins or bars. People who buy precious metals in bulk buy bullion. Here, when sold to individuals, gold is usually measured in ounces. Gold dealers charge a fee, and that’s where many people overspend. The U.S. mint has a list of reputable gold traders on its Web site.

Investing in gold-backed ETFs: An ETF, or exchange-traded fund, is a type of security linked to gold price. Many investors think that this is a safer long-term option. “It’s easier to get in and out, and you don’t have to take possession of the gold,” said Constance Stone, a certified financial planner at Stepping Stone Financial. “If you don’t have a home safe, where are you going to store it?” John Hauserman, a certified financial planner at Retirement Quest in Marriottsville, Md., doesn’t advise clients to invest in gold but thinks that ETFs are the safest choice. “If you’re investing in either gold-backed ETFs or mutual funds, you’re buying the rights to gold” in a diversified portfolio.

Investing in gold mines: While the value of mining stocks is usually linked to the price of gold, that’s not always the case. “We prefer investing in gold-mining equities,” Corcoran said. “Gold-mining equities haven’t been this cheap relative to price of gold in the last 29 years.”

Why people buy gold: Some people think of gold as a commodity; others consider it a universal currency. “People keep gold as safe haven during times of uncertainty,” Corcoran said. “Geopolitical turmoil and competitive currency debasement, where everyone is printing money, could push gold to new highs.” In times of economic turmoil, more people tend to invest in bullion gold. According to Forbes, analysts believe China bought 490 tons of gold in 2011, almost double the amount it purchased in 2010. Amid global tumult, investors and even central banks buy gold.

No one gets a deal on gold: If it’s too good to be true, it is. People looking to get rich quickly from buying hunks of gold at pawn shops or unauthorized gold dealers are being duped. Only buy from an authorized dealer or the U.S. mint.

You can’t flip gold quickly: Gold is a long-term investment, whether you’re buying bullion, equities or ETFs. “Over the past decade, the price of gold has gone up by about 550 percent, and the average annual return is 18 percent,” Corcoran said. (Historically, the Standard & Poor’s 500-stock index outperforms precious metals, but returns have fluctuated greatly in the past decade.) Because you’ll pay between 4 and 12 percent above the spot price, or what gold is trading for that day, it’s hard to sell bullion weeks later at a profit. If you buy, you’re in it for the long haul.

Do math if buying bullion: Stone says that if you’re buying gold coins and paying more than 12 percent above the spot price, you’re being ripped off. One-ounce coins rarely have a mark-up of more than 12 percent, but with small coins, say, a tenth of an ounce, the mark-up can be 50 percent higher than the spot price. Beware of dealers that have a set fee for every coin you buy.

Keep a diversified portfolio: Experts remind gold investors that they should keep a diversified portfolio. “Gold is only as valuable as the next person will pay you for it,” Hauserman warned. “When it starts to go the other way, all of a sudden, no one wants it.” You wouldn’t invest all your money in stocks, and gold operates the same way. Stone suggests having no more than 3 percent of a portfolio in precious metals.

Buying gold at the top: Buying gold at the top doesn’t make financial sense, but experts disagree on where the top will be. Gold prices are relatively high, because they’ve been rising steadily since 1999. Some experts think the price will continue inching up this year. Hauserman said he thinks that gold is a bubble that will burst when the economy improves. Regardless, it’s the wise investor who remember the adage: buy low and sell high.

THE BOTTOM LINE Gold is a long-term investment, not something to flip for quick cash. Talk with a certified financial planner to see whether gold fits your financial needs before buying into the rush. If you’re selling, shop around and sell to a reputable gold dealer.


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— Janet Bennett Kelly