"You're buying a company in the gold business and indirectly you get a stake in their gold reserves and their gold business. It's an indirect method of betting on gold. The streetTracks Gold Shares exchange-traded fund is far more direct," Weiss says.
"Mining stocks reflect the profits of the company. If it costs the company $250 an ounce to dig up gold, pay employees, gas and the like, and gold is selling at $375, their profit is $125. If the price of gold rises to $500 their profits have doubled, so the stock is more volatile. But it works the other way, too. A drop in the price of gold could flip-flop a company from one that's profitable to one that's bleeding."
Some of the most widely-held gold mining stocks include Newmont Mining (NEM), Placer Dome (PDG), Barrick Gold (ABX) and AngloGold Ashanti (AU).
Advisers often tell do-it-yourself investors that the safest way to play the stock market is to buy mutual funds. That advice probably holds up well when looking for a foothold in gold, too. They're not always pure plays on gold, but that helps lessen volatility, says Mark Skousen, economist and chairman of Investment U, a free investment newsletter.
“Be aware that some funds might be more volatile than others”
"I like the mutual funds that include a lot of different commodities including gas and oil such as U.S. Global Resources Fund (PSPFX). There are several out there that give you a little more investing in other areas rather than just precious metals.
Two other funds that were recommended in the course of researching this article are Prudent Global Income (PSAFX) and Vanguard Precious Metals and Mining (VGPMX). There are scores of other mutual funds that seek to give investors a stake in gold. Be aware that some funds might be more volatile than others and that expense and transaction fees can vary widely. Some funds may also charge a fee if you cash out before a certain holding period, usually six months to a year.
Buy gold jewelry because you like it, not as an investment. You pay a premium for jewelry, in part because of the design and craftsmanship. If you buy 14 karat gold, it's less pure than investment grade. When you sell, you'll need to consider the purity of the gold and, more than likely, it will have to be refined to bring it up to investment grade.