The price of gold has risen spectacularly over recent months. But before you jump on the gold bandwagon, it's important to think about how it fits into your overall portfolio - the yellow metal can have significant shortcomings.
Over the past two years gold has risen from $A1,150 per ounce to $A1,563 an ounce - a leap of 36%. Over the last few weeks a rising tide of investors has flocked to gold amid concerns about US and European debt levels.
In the past it hasn't been easy for ordinary investors to access gold. But these days there are a number of ways to tap into this asset class that don't involve hoarding bars of bullion in the family home.
The Perth Mint for instance offers a Certificate Program, which lets investors buy gold and have it stored at the Mint. As an investor you'll receive a certificate detailing your metal holding, and the gold is insured by Lloyds of London.
The Perth Mint's program is government guaranteed, making it a very safe way to own gold. You can find full details at www.perthmint.com.au.
The downside to this option is that you won't receive any ongoing returns - you are pinning all your hopes on capital growth. Investors need to weigh up the value of ongoing returns that could be earned on alternative assets, as well as the possibility that the price of gold could plateau or even fall in the future.
Rather than buying gold directly you could invest in gold company shares. Australia is one of the world's leading gold producers along with China and South Africa so there are plenty of gold stocks listed on the Australian Stock Exchange (ASX) like Newcrest Mining or Alacer Gold.
This option also has some drawbacks. The share price won't necessarily mirror movements in the price of gold. Your investment will also be subject to company-specific issues like the length of the mine's life, management quality and so on.
A third possibility is to invest in a gold-focused exchange traded fund (ETF). These funds are traded in much the same way as listed companies though the funds themselves are designed to represent an index, an investment portfolio or a commodity like gold. Fund provider BetaShares for example, offers an ETF that focuses on gold while also providing hedging protection against currency movements.
ETFs have the advantage of being very cost effective. There are no entry and exit fees, and the annual management fees can be around half a per cent.
Each of the investments I've mentioned has merits but it's important that any option you choose fits in with your long term financial plan.
If you're thinking of investing in gold because the price is rising or because you're concerned about the global economic outlook, you need to be very wary of the gold bubble bursting. It's a risk faced by all asset markets when prices rise rapidly, especially when the gains are fuelled by speculation or fear - which is gripping world sharemarkets right now.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.