Chasing The Glitter Of Gold For Your Portfolio

NEW YORK (MarketWatch) -- Investors who put their faith in gold have a slogan: Ingot we trust.

They've been doing it a long time. In ancient Egypt gold was thought to be the skin of the gods. Today its price encapsulates the main events of the world: everything from political unrest to the price of crude oil to a feeble dollar.

Revitalized by the latest mindlessly violent tragedy on the world stage -- the assassination of Pakistan's opposition leader Benazir Bhutto -- demand for the precious metal lifted its price over $830 an ounce, up from about $630 a year ago and about $350 five years ago.

You may be tempted to jump on the bandwagon, but bear in mind that the gold metal pays no dividends or interest, is costly to store and to ship, and can swing down as well as up. Indeed, prices of mining-company stocks tend to be more volatile than the metal itself.

Still, for the sake of diversification, the ordinary investor may be wise to park some assets -- perhaps 5% -- in the 30 to 40 gold mining companies that unearth the metal and sell shares to the public through ordinary securities salesmen. You also can buy shares in diversified mutual funds that hold some of the metal or in exchange traded funds.

A convenient and popular way to invest is to buy one-ounce gold coins, such as the South African krugerrand, the Canadian maple leaf and the U.S. gold eagle, among others. They tend to cost roughly $30 to $40 more than spot gold -- around $860 for a krugerrand now. Some people like to use them for jewelry or decoration as well as investment.

Warning: be cautious when choosing a coin dealer because markups vary and fraudulent sellers and false claims abound.

In sum, gold can be a worthwhile long-term investment, if you use it as part of a well diversified portfolio -- and you have a cast-iron stomach.

By Marshall Loeb