Gold Forecast To Rise

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(Kitco News) - The 2011 gold outlook from most analysts, simply put, is higher.

But for new investors wanting to join the gold rush, there is still some homework to do. They might want to familiarize themselves with the many ways in which they can invest--from coins to exchange-traded funds to mining stocks--to decide which are most suited for them.

Gold has been in a decade-long bull market, rising from roughly $250 an ounce to a recent record of $1,431. Many look for still more gains. BNP Paribas has forecast an average of $1,500 in 2011, while Goldman Sachs has a 12-month target of $1,690 (but also cautioned that gold could peak in 2012).

Gold is likely to benefit as the U.S. dollar loses purchasing power due to factors such as spending deficits and a rising debt load, said Jeff Clark, editor of Casey Research’s Big Gold newsletter. “Gold is priced in U.S. dollars. So as the dollar loses value, gold must go up almost by default.”

The metal has been viewed as the “ultimate currency,” often rising even on days when the dollar strengthens, said Bill O’Neill, one of the principals with LOGIC Advisers. This frequently occurs when European debt concerns rattle investors.

“There is no great desire from large investors in particular to hold any currency,” said O’Neill, who looks for $1,600 gold next year. Many central banks are adding gold to their reserves, he said. Also, governments and central-bank moves to pump money into the economy have fueled fears of inflation, which supports gold.

Just as investors should diversify overall portfolios, Clark and O’Neill suggested some diversification for the portion in gold, since there are pluses and minuses for each alternative.

Coins Among Easiest Ways To Invest In Gold

“Owning one-ounce coins, especially the popular versions, are the easiest and simplest and perhaps the best protection you can have for what gold is designed to do,” Clark said.

Widely recognized bullion coins can be bought and sold readily, O’Neill said. They can also be easily stored someplace such as a safe-deposit box.

Some may prefer bullion bars, which can be cheaper than coins per ounce. However, most investors then take on storage costs. Also, there is the chance potential buyers may question the authenticity. To avoid this, Clark recommended bars stamped by reputable refiners.

Holding physical gold is not risk-free. “One of the issues is security,” said Jeffrey Christian, managing director of CPM Group. Risks include theft or a catastrophe that destroys one’s home. Investors can purchase a safe or store metal elsewhere, such as a vaulted service or depository.

Such decisions could hinge in part on why an investor buys gold in the first place. Those who fear a complete financial or political apocalypse may want the gold in their possession.

O’Neill cautioned that coin buyers understand the difference between bullion coins, in which the value is based mainly on the gold content, and numismatic coins, in which a higher cost is also based on scarcity, beauty and other factors that increase demand among collectors. Investors can make money on numismatic coins but it takes extra expertise.