With gold prices soaring recently, no wonder eager traders are trying to get in on the action to trade gold for a profit.

Some investors are predicting that gold will reach $2,000.00 an ounce in 2013 while others are very cautious about placing any trade and rather wait and watch the markets to see how it will play out.

Here are some tips on how to own some gold and profitably ride the current gold trend:

  1. Do not buy too much gold at first. While equities tend to fall in value, gold retains its value very well.  Most people hold gold as insurance and as a temporary measure in volatile markets rather than holding it as a permanent asset. But, holding gold does not produce income and the price can be very volatile.  One rule of thumb is that no one should hold more than 5% of a portfolio in gold as a precautionary measure while others believe it should be only up to 3%. This lower percentage is really for those investors who have bigger investments in the equities market and their risks are much higher. 

  2. Invest in an Exchange Traded Fund (ETF).  This is a basket of gold stocks that anyone can purchase and is an easy way to get into gold investment. You can buy and sell shares daily and these are backed by physical gold. However, those who trade these ETF’s do it as a temporary short term play. 

  3. You can actually hold physical gold. There are specialists trading this commodity who will sell you physical gold and store it in their vaults for safe keeping and send you the certificates of authenticity and redemption.  If you decide to trade your gold holdings at a future date you can use your redemption certificates. However, holding physical gold has a disadvantage in that it might be difficult to sell quickly and upfront costs are high. There is an initial fee of around 2 percent and a selling fee of around 1 percent with no annual storage fees. But, according to historical calculation, after six years it would be cheaper to hold physical gold than owning an ETF which has ongoing costs.

  4. Buy Mining Companies to trade gold. Because of equities market volatility, gold mining shares are considered a better value as compared to the steady rise of gold prices. When gold prices are trading at attractive prices it might be a good bet to invest in these mining shares.  But if you hold gold in mining companies, any sell off in equities will affect your holdings.

  5. Buy silver instead of gold. Often called “a poor man’s gold’ silver is the preferred precious metal to hold as it trades at much lower prices  and is more volatile than  gold. But, silver prices can fall if the economy falters since it is used extensively in industrial applications.

 So, if you are inclined to trade gold for appreciation and profit you can investigate these approaches by performing a Google search for each item.