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Beginner's guide to investing in gold

8:35 AM

GOLD'S glittering run up to record highs in the past few weeks has sparked intense interest in the precious metal.

There are several ways to invest in gold, however before you take the plunge you need to do your homework and understand what you want or expect from your investment.

The first step is much easier than the second.

With the price of gold soaring above $US1050 an ounce last week, there are opposing views among analysts as to where it is heading next. Some say gold appears overpriced, while others expect it to at least double in value over the next few years.

Grand Private Equities general manager Byron Legrand says gold is only at a record high in US dollar terms, largely because of the sharp fall in the US currency as its Government prints money to try to revive the economy.

"Paper will become more and more worthless so the price of gold is rising, as you cannot print gold," Legrand says. "You cannot fix a debt bubble by creating ever more government debt, as this creates ever more severe problems and eventually the failure of the currency."

Legrand sees the gold price trading at between $US1200 an ounce and $US2000 in 12months, and more than $US4000 an ounce in five years.

"Both China and Russia are now greatly increasing their gold purchases and disposing of their US dollars as fast as they can, and the Chinese Government is also publicly encouraging its citizens to buy gold," he says.

Bell Potter Securities adviser Ashley Kelly is not as bullish.

"Most of the consensus forecast numbers for 12 months are still around the $US800 to $US900 mark," he says.

"It's at $US1050 now and it's conceivable that it will continue to go up if the US dollar stays weak."

But he doesn't expect gold to trade as a new currency.

"It's unlikely that will happen because it's still a commodity. At some point it will come back to supply and demand," he says.

"At the moment it's being traded as a currency because the world has realised the US is not going to have a V-shaped recovery, which means low interest rates and no great reason to hold US currency.

"We think gold will continue to be strong in the short-term until the US economy starts to clear debt and show signs of recovery."

Morgan Stanley Smith Barney adviser David Robinson says while gold may be "temporarily overbought", it should still climb.

"Global fundamentals are likely to continue to weigh on the US dollar, which should be positive for gold," he says.

His firm forecasts gold to trade at $US1100 for the next few years.

How to invest in gold

THERE are several ways to get gold exposure from buying bullion directly from the Perth Mint, to buying listed gold securities that track its price movement, to buying mining company shares.

Morgan Stanley Smith Barney adviser David Robinson's preference is an exchange-traded fund, GOLD, which is listed on the stock exchange and invests only in physical gold. It tracks the price of gold, based on the spot price less a management fee of 0.4 per cent a year.

Grand Private Equities general manager Byron Legrand prefers gold company shares.

"If the gold price rises 100 per cent, most gold shares will probably rise 200-300 per cent and some juniors 400 per cent,'' he says.

Bell Potter Securities adviser Ashley Kelly says Lihir Gold is the "pure play" for share investors.

Newcrest Mining is another big gold producer, but it is not a pure play as it produces a lot of copper too, he says.

Kelly also likes a "couple of good, emerging gold companies", such as St Barbara and Avoca Resources.


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