Despite record highs, gold maintains allure

NEW YORK -- An ounce of gold has passed $880 for the first time.

Q. Why is gold trading at record levels?

A. Gold prices have soared over the past year as a weak dollar, record high oil prices and concerns about world political tensions have increased the allure of precious metals. Gold is seen as a safe investment in times of political and economic uncertainty, and as a hedge against inflation. Gold remains far short of its previous high set 28 years ago, however, when adjusted for inflation. An ounce of gold at a 1980s record of $875 would be worth $2,115 to $2,200 today.

Q. Should I invest in gold?

A. Putting money in precious metals such as gold can be a smart way to diversify your portfolio, particularly as a hedge against inflation. Over the long term, gold is likely to hold its value. "It shouldn't be seen as this obscure asset held by people who think the world is going to end tomorrow," said Ashraf Laidi, an analyst at CMC Markets. In the short-term, however, gold can be very volatile.

Q. How can I invest in gold?

A. You have a few options. Individuals can put money in an investment vehicle tied to gold or buy the physical metal. One choice often recommended for individual investors is a gold futures ETF. Another is a gold bullion ETF. A prudent choice for inexperienced investors is to buy into a mutual fund that has exposure to gold.

Another option is to invest in mining companies, either through an index fund that tracks them or by buying individual company stock. These investments have lower tax rates than gold ETFs but are at the mercy of labor or management problems that can arise.

You could also consider buying physical gold. That involves contacting a bullion dealer who will ship to you gold bars or American Eagle coins produced by the U.S. Mint. Your gold will need a home, such as a locked safe or a safety deposit box at your local bank, said Donald Doyle, chairman and CEO of bullion dealer Blanchard and Co. Or, "you could always bury it in your backyard," a preferred location for some clients, he said. Costs to store and insure your gold can eat into profits.