How to Invest in Gold

Hello and welcome to Money Girl's Quick and Dirty Tips for a Richer Life.

Today's topic: How to invest in gold.

Two episodes ago, I explained how gold acts as the anti-dollar, meaning that its price tends to go up as the U.S. dollar goes down. Since 2001, the U.S. dollar has been losing value and the price of gold has been going up. It was $270 per troy ounce in early 2001 and is now, in late October 2007, over $780 per troy ounce.

Why Gold Holds Value Over Time

If you think that we'll experience more inflation ahead and that the dollar is likely to continue to lose value, you might be contemplating how to put a portion of your portfolio into hard assets, such as gold.

But how does an ordinary person invest in gold?

Gold ETFs

Two examples of ETFs that simply buy, store, and insure physical gold are StreetTracks Gold Shares (which is traded on the New York Stock Exchange under the ticker symbol GLD) and iShares Comex Gold Trust (which is traded on the American Stock Exchange under the ticker symbol IAU).

One of the key benefits of investing in gold through an ETF is that you don't have to worry about safely storing physical gold yourself. Owning physical gold can be risky because it can be stolen or lost, and you usually need to pay a fee to store it safely.

One important thing to be aware of is that the IRS taxes gold ETFs like collectibles, not like stocks and mutual funds. Collectibles are subject to special tax rules. If you hold a gold ETF for more than a year, instead of being taxed at the long-term capital gains rate of 15%, you'd be taxed at the special collectibles rate of 28%. However, you can avoid the higher "collectibles" tax rate for a gold ETF by holding it in a Roth IRA, which is tax-free.

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