Three ways to buy into gold

While you were sleeping, gold hit another record high. At last count it was at $1179. So, while my heart tells me it's time to take some money off the table, my head tells me that's not the right side of the trade.

The gravity-defying gold rush is still on. If you already own some, you're golden, so to speak. If you don't own any, read on to learn a few ways to take part in the rally that everyone's talking about.

But first, a confession...

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Given the many twists and turns in the gold market, I must admit that I've taken my eye off the ball. It's not often that one asset finds friends among so many different investors groups.

I'm used to investing in a stock with a strong retail following. Or a derivative contract popular among traders. Or a fund gathering a lot of IFA interest. With every investment I make, I try to identify its key demographic and stalk it relentlessly.

It's about finding the people that count and listen to them, quiz them and track their activity to get the inside scoop. By mixing detective work with good old fashioned fundamental analysis, you too can to get the story behind the figures.

It's been difficult to keep up with gold

On top of the generic case for gold: it's the one currency that cannot be devalued, hence the most valuable in a time of competitive devaluation by the UK, US, etc.

I have been looking for the leading lights on the gold market and following their cues - there are so many to follow

First, it was a niche argument held, as it always has been, by gold bugs; then, some hedge funds began to talk up gold. International central bank buying was the next narrative to take the market, followed shortly by chartists speculating on how high it could rise.

Now, the bank analysts are coming to the fore

In the last week, Socit Gnrale's analyst Dylan Grice made headlines by suggesting gold could go all the way to $6,300. Grice cites "Central bank hoarding could usher in another famous gold bull market," and that "there is a case for gold being 'cheap.'"

It's hard to keep up. It's unheard of that one asset crosses over to just about every player in the market. Gold seems to be something that everyone, whatever their persuasion, can agree on.

It's the Barack Obama of world finance, except gold is even more popular!

So how should you navigate such a 'bid up' investment right now?

Tread carefully

I recommend you tread carefully. After all, it's possible that 2009's big gold run is behind us. Even in Mr Grice's ridiculous prediction, he concedes that $6,300 is "a long way off." There is a possibility that gold could sting investors as it has so many times before.

If you had bought at the peak of the last run up in prices in 1980, you would have proceeded to lose 70% over the next 19 years. That's a very long dormant spell for us to have much faith in gold this time around.

Therefore, you should set a stop loss and not get too attached.

I'll be honest, if the trend starts to reverse, new investors will be hit hardest. If you don't like those odds, don't invest. Not to be callous, but that's simply the price one pays for coming late to the party.

However, for the reasons discussed above, it's a popular (and profitable) party to join.

Three ways to buy the rally

So how does one buy gold?

Physically, through ETFs and through miners. Let me explain

You can buy physical gold a number of ways, as bars or coins, from bullion merchants or coin dealers. But you need to think carefully about how you then safely store your gold. One popular and simple alternative way to gain direct ownership is through a service such as BullionVault.com.

If you are looking for ETFs, I would look at ETF Securities' Physical Gold (ticker: PHGP) listed on the LSE. I like this one as it is 100% backed by physical gold in a vault. That means it doesn't matter if ETF Securities goes bust or even the custodian HSBC goes bust as the gold is ring fenced in a segregated pool.

The third option buying gold mining shares is more risky, but potentially more rewarding. You see, choosing a mining share requires an understanding of how much gold the mine contains, how long it will take to mine it, how much the extraction will cost, and quality of management not to mention the trends in underlying gold price. In short, it's not for beginners.

All three options should hold up well for as long as the precious metal is in vogue. How long that will be, at this stage, is anyone's guess.

This article was written by Theo Casey for the investment email The Right Side

For more detail on how to cash in on the gold surge see MoneyWeek's recent cover story: A bite from the gold bug is good for your wealth (If you're not already a subscriber to MoneyWeek magazine, try your first three issues free here )