Philosophy, Temperament Dictate Investment Strategy

So you’ve decided to invest in precious metals. Now it’s time to figure out how to do it.

With alternatives ranging from newly minted coins to highly leveraged futures contracts, the best way to go depends on your individual investment philosophy and temperament. For example, Lawrence A. Krause, a San Francisco financial planner and author, suggests buying shares of gold mutual funds.

Investors, he maintains, tend to keep their objectivity when dealing with that kind of investment. People often get too emotionally attached to gold bars and coins to sell when the time is right, he says.

But Lewis M. Wallensky, a Century City financial planner, disagrees. He says one of the main reasons to invest in gold is as a safeguard against a disaster that wreaks havoc on national currencies. And if paper dollars become worthless, he argues, stock isn’t likely to be of any value either--but gold bullion is.

Here’s a look at the principal ways of investing in precious metals:

- Coins and bars. These appeal to people who want hard, rather than paper, assets. But remember to take storage and insurance costs into account. The annual charge usually is from 0.5% to 1% of the metal’s value. Also, bullion bars often require an appraisal known as an assay before being sold.

Bullion coins, valued on the basis of their gold content rather than scarcity, include the American Eagle and Canadian Maple Leaf. They are more liquid--that is, easier to buy and sell--than bars, but generally you pay a premium of around 4.5%. Shop for the best prices.

Numismatic, or collectors’, coins are a vastly different kind of investment; their values hinge more on their availability, popularity and condition than the market value of their gold. Investors may want to get a second opinion on a coin’s value to avoid being stung by an unscrupulous dealer.

- Stocks. Shares of gold mutual funds or individual mining companies can be bought for small amounts and offer a chance to profit smartly from even a slight rise in gold prices. Mining companies’ costs are fixed for the most part so any change in the value of a metal translates into a dramatic rise or fall in corporate profits and stock prices. Investors can receive dividends, too.

Some experts, however, consider these investments unpredictable and difficult to assess. The argument is that when you invest in these stocks, you have to take into account corporate managements and stock market conditions along with the dynamics of the underlying precious metals themselves.

- Accumulation programs. This typically involves having your bank or broker extract a fixed amount of money from your account at regular intervals and putting it into precious metals accounts. Sales commissions are low and storage is handled for you. It’s helpful for the person who wants an inexpensive and disciplined approach to precious metals investing.

- Certificates. These are sold by many banks in lieu of the actual bullion they represent. They are easy to buy and sell and, again, sales fees are low and storage isn’t a problem. One of the main disadvantages is that if you decide to turn it in for your metal, delivery may take several days.

- Options and futures contracts. These are very, very risky. “You might as well go to Las Vegas,” said Joseph C. Battaglia, chairman of Gold & Silver Financial Group in Encino. An option is the right to buy or sell gold at a fixed price before some future date. Futures contracts are promises to buy or sell a specified quantity and grade of gold on a given date for a set price. The standard wisdom is that these are for only the most sophisticated investors. The vast majority of small investors lose money in futures and options.