Harish Raju Musings

While the bulk of the 160,000-ton above-ground gold stock (about 5.1 billion ounces) is used in jewelry and the electronics industry, about 16% is held by investors for pure investment purposes, according to the World Gold Council. The gold investment market, however, is dominated by big institutions, which trade with one another directly in large orders through the opaque over-the-counter markets.

Gold is also traded through futures contracts in New York, Tokyo and a few other places. Futures trading, however, requires quite a bit of capital. One futures contract on the Comex division of the New York Mercantile Exchange, for example, represents 100 ounces of gold, or about $88,000 in current prices.

Gold coins provide an easier channel for retail investors, who can buy coins through dealers online, much like buying a book at Amazon.com. Since the South African Krugerrand became available in 1967, bullion coins have become increasingly popular among retail investors.

“Because of what’s happened in the past and what I believe is happening now [the financial crisis], it is imperative you own some gold, some real gold, gold you can bite down on, gold that clanks,” said Dan Ferris, writer for DailyWealth, an investment newsletter.

The U.S. fabricated 22-karat American Eagle coins in 1986. The Mint introduced the American Buffalo gold coin, the first 24-karat gold coin in the U.S., in 2006. Twenty-four karat represents a gold purity of 0.9999.