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Gold tips for 2008

In our last column we recommended buying gold if the price dips in a US dollar rally in 2008. But readers will still need to carefully consider exactly how to invest in gold. A basket of gold assets might be the best way to maximize your investment upside, with the skew towards riskier options this year.

It is one thing to decide that gold is again the investment choice for the year ahead: gold has almost touched its all-time high of $850 an ounce in recent months, but when adjusted for inflation this figure should be well over $2,000.

Just an aside, but why is it that we always talk about the $100 inflation-adjusted peak oil price, but do not adjust the gold price in the same way when talking of peak prices? In truth we are not even close to an inflation-adjusted gold price peak.

But how does the sensible investor go about investing in gold? If you are talking about a small sum, then the new golden Sheikh Mohammed coins minted in the UAE are an excellent choice with a low premium over the value of the metal.

Bullion storage

For a larger investor the safety of storage and even the weight of such a dense metal becomes an issue. There are many options but one of the lowest cost solutions is the Perth Mint’s depositary scheme which charges nothing for the storage of unallocated bullion; and bullion can be bought or sold instantly or converted into gold bars.

However, as the gold price takes off investors should also include shares in gold producers and explorers as a part of their portfolio. This year the market has fretted over rising costs for major gold producers and share price increases have not been as great as expected. This is a buying opportunity.

The same can also be said of some junior gold producers. These are the corporate minnows likely to give the most spectacular share price increases in a gold price blow-off, or even just after this market event.

Gold tips

So which gold assets should go into a diversified basket next year? If you think the gold price is about to really lift off then you should skew your asset allocation towards the riskier smaller companies.

That might mean you follow Russian billionaire Roman Abramovich, who has just spent $400m on a 40 per cent stake in Russian miner Highland Gold. Or you could follow the advice of Wall Street veteran gold analyst Joe Granville and invest in a real minnow like Linux Gold, which he has been tipping for two years and has just acquired a substantial gold discovery.

Newcrest Gold is gold analyst Doug Casey’s favorite stock, while Seabridge Gold is another upcoming smaller producer with great leverage to the gold price; however, both stocks have seen their price run up this year and should only be bought on weakness.

Finally, gold bugs should not forget silver as a diversification within precious metals. In the past this volatile cousin of gold has delivered better performance in times of financial crisis.

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