Golden Investments: Different Ways to Profit from Gold's Bull Run

With the market in turmoil, many investors are seeking a safe, but still profitable, place to put their money. Some investors are betting on the overseas markets to remain strong, but these are still susceptible to a great deal of risk, especially if the American economy takes a hit due to higher oil prices and the subprime mortgage fallout. Risk is an inescapable part of investing, but in the current economic climate there are a few areas that show great resilience. Since 2001 there has been a tremendous bull market in raw resources -- oil, copper, gold, zinc, uranium etc -- and it shows no sign of stopping any time soon. In particular, gold has been on a great run since it is both a commodity and also a currency -- people invest in gold as a safe haven against currency depreciation. But how can the ordinary investor partake in gold's profitable glimmer?

An investor can always choose to buy gold directly and put it in a secure location. However, the problem with this is that you must pay shipping costs, storage fees, and sometimes insurance. While your wealth will increase in proportion to the price of gold, your investment isn't leveraged, so the price of gold would need to double for your investment to double. This is a very conservative approach and does appeal to those who are skeptical of the financial markets.

The ETF (Electronic Traded Fund) is a recent financial innovation that allows investors to pool their money, but avoid the costs associated with mutual funds. The StreetTracks Gold Shares (GLD) is an ETF that owns physical gold and moves in proportion to the price of gold. Investors can now seek exposure to gold without facing the hassle of shipping, storage fees, and insurance. The investment isn't leveraged, so it moves in proportion to the price of gold. It trades at one tenth the price of gold, so if the spot price of gold is $800.00 per ounce, GLD would be trading at $80.00.

For those who don't mind adding a little risk to their gold investment, there is always the option of investing in gold stocks. While it's true that gold stocks do tend to rise with gold prices and vice versa, there are a few cautionary details every investor should know. When you invest in a gold stock you are not just investing in gold, but also the company's management, business model, and various other contingencies. If the company is located in another country, there is always political risk (think nationalization), or if the company hedges the price of gold then its revenues wouldn't increase along with the price of gold. If anyone doesn't wish to select individual stocks, then there are a few mutual funds that exclusively purchase gold stocks. American Century's BGEIX is a good choice and has shown remarkable rates of return over the past six years.

Finally, there are options and futures, unorthodox interments, that are quite risky but potentially very profitable. Purchasing call options on gold futures would be the relatively safer investment because with options you cannot lose more than what you paid for the option. One call option contract on gold is worth 100 ounces, so it does provide a great deal of leverage. For instance, for every $1.00 increase in the price of gold, the owner of a future contract would experience a $100.00 gain. This is the power of leverage, but it is a double-edged sword. If the price of gold were to fall $10.00 then one would suffer a corresponding $1000.00 loss.

Regardless, the fundamentals remain in place for the price of gold to continue to rise. The blanket uncertainty about the Middle East, the rising deficit, the growing strength of the Euro, and the absence of any political will to support a strong dollar should make gold a great opportunity for any investor.