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Gold Rush: Getting In On the Rally

Gold prices are now within striking distance of $1,300 an ounce — marking a $300 rise, an almost 28 percent return in one year, and nearly quadruple the gains of the broader stock market. No wonder the push to own the precious metal has become so pervasive.

Gold
Jose Luis Pelaez | Iconica | Getty Images
Gold

Full-page newspaper ads selling "government gold" coins "at cost" and TV commercials offering "Cash4Gold" and touting other gold coin deals have not only attracted investors' attention, but lawmakers as well.

On Thursday, a House Energy and Commerce Subcommittee will hold a hearing to address legislation to make clearer to consumers the likely investment value of gold and other precious metals.

The ads don't always tell you exactly what you're buying. It takes a little digging. A newpaper ad from United States Coin & Gold Reserve in USA Today this morning offered gold coins staring at $136.09. I called the company to find out what kind of gold coin you'd get for that price and was told that's the cost of a 1/10 oz. American Eagle gold coin.

Searching the website of Goldline International, a company that's become a frequent TV advertiser on conservative cable networks, a similar 1/10 oz. American Eagle gold bullion coin costs $175.78 and it's $251.41 for the same weight of the "high-grade" version.

Gathering 10 of those coins for one full ounce would still exceed the spot price of gold on the COMEX futures exchange, which is still a few dollars shy of $1300 an ounce.

Price disparities on gold coins can be confusing to some investors who are uncertain whether they are purchasing gold bullion coins or "high-grade," certified coins — and don't understand the difference. There can be high mark-ups, and then you have to figure out where to store the gold and make sure it is secure.

Gold exchange-traded funds are far easier to trade and put in your brokerage account or IRA. That accounts in part for the surge in investor demand in recent years.

Assets under management in the largest gold ETF, the SPDR Gold Trust, which started trading at the NYSE in November 2004, now top $53 billion dollars. The runner-up, iShares Gold Trust, has over $4 billion in assets. The shares of both are backed by physical gold and have tracked the gold price rally tick-for-tick in the past year.

Mining stocks, like Newmont Mining, and the Market Vectors Gold Miners ETF have also benefited greatly from the upside exposure to gold.

As one trader noted to me today: "If you want to add up the market cap of all of the 37 stocks in the GDX, it still falls well short of Apple, Google, Intel... so there is still a ton of room to run."