Gold offers investors taste of an old standard

While watching the Winter Olympic Games in Sochi, Russia, do you ever wonder how much the gold medals are actually worth?

Turns out a gold medal isn’t actually worth its weight in gold. The last time solid-gold Olympic medals were awarded was at the 1912 Summer Games in Stockholm. Today, the medals are mostly silver covered in just 6 grams of gold. The Sochi medals are the largest and heaviest ever produced for the Olympics. They are 4 inches in diameter, 0.4 inches thick and weigh a full pound. Using current prices of gold and silver, the actual value of an Olympic gold medal today is about $550.

The current price of gold is about $1,300 per ounce. Two years ago at the Summer Olympics in London, when gold was selling for about $1,600 an ounce, a gold medal was worth about $650 — and that was a smaller medal with a total weight of 14 ounces. While the price of gold has fallen by about 20 percent since those Olympics, gold continues to be an investment of interest for many people.

But investing in gold can be tricky.

There are several reasons an investor might consider adding gold to his or her portfolio — after all, humans have been mesmerized by this lustrous, nontarnishable, malleable metal for many millennia. But once the decision is made to invest in gold, one must decide how to invest in it. Here are three popular approaches.

1. Physical possession: Investors can buy gold bullion in the form of coins or bars. This is the most common and direct way to own gold.

The problem with physical possession of gold is that, except for small quantities, there will be storage and possibly insurance costs. Many investors keep their gold in a bank safe deposit box. If you are keeping it in a safe in your home, be sure to talk to your insurance agent about the limitations of your homeowner’s policy. With gold coins or bars, expect transaction fees when you buy or sell them.

The next decision is what type of coin or bar to purchase. South African gold Krugerrands are popular coins, but other choices include the gold American Gold Eagle, Canadian Gold Maple Leaf, Swiss 20 franc and British gold Sovereign coins. Each is priced differently, although each weighs an ounce.

2. Gold-mining stocks: When buying mining stock, investors accept risk in exchange for what they expect will be a larger upside if the business and market conditions are favorable.

As long as the cost of extracting the gold is well below the selling price of gold, mining companies should be able to profit, and so should shareholders.

3. Gold exchange-traded funds: The most popular gold exchange-traded fund is GLD. This is a very inexpensive way to get gold exposure, and because GLD trades on the stock exchange, it can be bought or sold every day, making it a very liquid investment. GLD is an exchange-traded fund based solely on gold, but there are also ETFs for gold-mining stocks, such as the Market Vectors Gold Miners or GDX.

For those of us not competing in Sochi but who are still interested in getting a taste of gold, talk to your financial adviser about why gold or other commodities may be appropriate for your portfolio.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.