Dear Dr. Don,
How do you buy gold? I was told you lose 15 percent right from the start. Is this so? What are the charges?
— Olga Ingot

Dear Olga,
The first step is to critically examine your rationale for wanting to hold gold. What are you hoping to get from this investment? Are you looking for protection from inflation, for a store of value or just to speculate that gold will continue to increase in value?

As I write this reply, gold is trading for $1,183 a troy ounce. Gold bugs think that the metal will continue to head higher. The risk is that you invest at these levels only to find you’re chasing past performance.

There is a host of ways to invest in gold and gold-related investments. You can own the precious metal in physical form by buying gold coins or bullion. You can invest in exchange traded funds, or ETFs, that invest in gold. You can buy futures contracts, or options on futures contracts, that let you speculate on the future price movement of gold.

Until researching this reply, I had never heard anything about losing 15 percent right from the start when investing in gold. Obviously, that’s something you want to avoid.

If you’re buying American Eagle Gold Bullion coins from a dealer, the government charges the dealer a markup between 3 percent and 9 percent depending on the size of the coin — the smaller coins have higher markups. Any additional markup by the dealer would add to that percentage, but paying a 15 percent fee seems unlikely.

Buying bullion and paying for storage and insurance will add to your costs, but sites like say they can provide storage and insurance for less than 0.12 percent per year. At that rate, it would take over eight years to pay 1 percent in storage and insurance costs.

My feeling is that investors no longer need to buy gold for protection against inflation because they can buy inflation-indexed U.S. Treasury securities. Gold investors can have other reasons to own the metal besides domestic inflation.

How you choose to own gold should be based on how much money you plan to spend in owning gold and how frequently you plan to adjust your position. ETFs, like the SPDR Gold Trust (GLD), are much more conducive to trading than owning gold outright either as bullion or coins. There can, however, be tax issues in owning a precious metal ETF.

Futures and options allow you a degree of leverage not available in owning the metal outright, but aren’t for the novice investor.

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