Quarterly Investment Guide

Best ways to invest in gold now

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Gold prices rose again last week on news of the downing of Malaysia Air Flight MH17, the latest in a series of geopolitical shocks that have sent the price of the precious metal up this year.

The price of gold rose 4 percent in the year preceding July 17. On news that the airliner had been shot down over Ukraine, it rose 1.2 percent, to $1,315 per ounce, according to Morningstar data based on the London Fix. (It's since fallen a little as investors have started taking profits.)

The volatility is a sign of the most fundamental fact about gold. It is possibly the most emotionally-driven asset class: the refuge of apocalyptic worriers, as well as of serious traders who look at it as a portfolio diversifier and alternative to paper currency.

"You cannot discount the psychosis that exists around gold," said Ben Johnson, Chicago-based Morningstar's director of manager research for passive strategies. "We call it the oldest continuous 2,000-year-old investment bubble around here."

Ray Olson Jr., a financial advisor in Midlothian, Virginia, said he fields regular inquiries about investing in gold and tries to dissuade his clients. "The problem is when they want to invest in gold is usually the worst time to invest in gold," he said.

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The biggest knock against gold is that it is a nonproductive asset: There's no productivity underlying its value, which is set by perceptions of its relative safety.

Olson said his clients tend to get worried about the value of paper currency and the banking system when there's turmoil in the world. But if you're worried, chances are others are too and have already driven the price up.

In the context of recent history, however, gold is at a low point. The price of the precious metal—historically a very volatile asset class—has tumbled in the past three years.

As the market for equities improved, the price of gold fell at an annualized average rate of 6.4 percent, according to Morningstar. Last year investors pulled $23 billion out of the largest gold ETF, SPDR Gold Shares Trust (GDL).

"That's a record for outflows from a single fund that I don't think will ever be broken," said Matt Hougan, president of San Francisco-based ETF.com, by email. "There's been a massive bloodletting in gold-related assets over recent years," he said, but he believes gold will rise in the next few years.

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If you want to invest in the safe-haven metal, for whatever reason, your options continue to grow. You can seek out investment products, jewelry or buy gold coins. Demand for the precious metal in all its forms was virtually unchanged between 2013 and 2014, at 1,074 tons, according to the World Gold Council.

Here are five ways to hold gold:

1. ETFs

According to ETF.com, there are 33 ETFs that invest in gold, including GLD, the first and largest, with an expense ratio of .4 percent. DUST and AGOL are two others. That's up from 16 ETFs in 2010.

"There are a growing number of investors who use it in their portfolio," said Johnson. The main advantage to holding gold through an investment product is liquidity.

Axel Merk, president and CIO of Palo Alto, California-based Merk Investments, said those who buy gold are usually using it as a substitute for currency. "They think the bigger risk is holding cash."

Merk, whose firm has just introduced a new gold ETF, said he holds 40 percent of his non–real estate portfolio in gold.

2. Closed-end funds

There are closed-end funds that invest in gold. These funds typically trade at a discount or premium to the underlying asset, depending on the market. So if you find one trading at a discount and you believe the price of gold will go higher, this could be an option. But fees in closed-end funds typically are 1 percent to 2 percent higher than in mutual funds or ETFs.

If you are considering a closed-end fund, one of the prominent ones in the market is the Sprott Gold Bullion Fund (SPR216), said Morningstar's Johnson. It has a three-year compounded return of 1.8 percent and a five-year return of 4.4 percent. As an illustration of the volatility typical of gold investments, consider the largest one-month gain, 14.8 percent; its largest one-month loss is 10.7 percent. It has a front load of 2 percent and a 1.09 percent expense ratio, according to the company's website.

3. Single stocks

You can also invest in gold-mining companies (the small ones are known as junior gold stocks), but this strategy holds all the regular risks of single-stock investing, plus the added risk of investing in a highly volatile sector. As a rule of thumb, gold mining stocks can have as much as a 3-to-1 leverage to gold's spot price to the upside up and down.

Picking these stocks takes smart due diligence. The best performers are companies with strong production and reserve growth. They must have good management and inventory supported by production.

4. Gold coins

If you want to bury the gold in your backyard or keep it in your safe, gold coins may be the way to go. So far this year, the U.S. Mint has sold more than 500,000 gold coins, known as American Eagle coins, down from last year. If you want to buy a gold coin, you have to purchase it through a network of authorized dealers that include wholesalers, brokerage companies, precious metal firms, coin dealers and participating banks.

The most popular and liquid 1-ounce coins are Krugerrands, Canadian Maples and American Eagles. The U.S. Mint provides a listing of authorized gold American Eagle bullion coin dealers. To get a snapshot of the vast market, you can browse the online marketplace APMEX.

5. Gold jewelry

How to invest in gold (safely)

Jewelry remains the most popular way to hold gold, accounting for nearly half of gold demand, according to the World Gold Council. The percentage of pure gold the item containsor karat number—ranges from 24K for pure gold to 10K, which means it contains 10 parts gold and 14 parts of one or more additional metals, making it 41.7 percent gold.

When buying jewelry as an investment, understand the karat amounts and how it affects the price and durability of each piece. Keep in mind: Gold jewelry is usually weighed in gramsthe higher the gram weight, the more expensive the piece. Ask the retailer for certificate of authenticity to ensure you are buying a quality piece of solid gold jewelry.

Nevertheless, it's best to buy jewelry with an eye to wearing it, not primarily as an investment. Because it is so illiquid, you run the risk of losing money on your gold jewelry if you need to sell at an inconvenient time. "You could take a major haircut on the price," Johnson said.

Read MoreHow to invest in gold (safely)

If you are motivated to buy gold, just be aware of what's driving you—the desire for owning a precious commodity that can be a hedge against risk in a volatile marketplace. The good news is there are a multiple number of ways to diversify your portfolio in gold. The one you choose depends in part on how much liquidity you need.

—By Elizabeth MacBride, special to CNBC.com