By Michelle Tay

Stock markets are as volatile as magnesium on water while fixed deposits are yielding close to zilch. Even commodities are slowly losing ground after a five-year boom.

Perhaps all that glitters now is gold?

Last Monday, the gold price rose to its highest in two months while the US dollar sank to a two-month low against the euro and weakened against other major currencies.

The reason was not hard to find - the United States Senate had refused to pass a US$14 billion (S$20 billion) rescue package for Detroit's Big Three automakers.

As the bailout package ran out of gas, stocks in Asia dived at least 5 per cent, while the slumping US dollar appeared to boost the appeal of the precious metal as an alternative investment.

In general, gold is a low-volatility asset. The World Gold Council (WGC) said the average volatility of the metal in the past 20 years has been about 2 per cent lower than that of the S&P 500 index on Wall Street.

Mr Marcus Grubb, WGC's managing director of investment research and marketing, said gold has enjoyed a 6?-year bull run, which peaked in March just after the Federal Reserve backed JP Morgan Chase's purchase of troubled investment bank Bear Stearns.

Gold was about US$260 per troy ounce in 2001, and reached a record of US$1,033.90 on March 17 this year. A troy ounce is approximately 31g.

Although it began trending down to hit around US$720, it is now back up to about US$850.

WGC chief executive James Burton said: 'Gold's universal role as a store of value has shone through during this quarter, helping attract investors and consumers to all forms of gold ownership.

'The rise in demand for gold bars and coins has been impressive, as has the record rise in gold ETF (exchange-traded funds) inflows. Perhaps most encouraging is the return to positive jewellery buying, which has been absent for several quarters due to the high levels of price volatility.'

A spokesman for United Overseas Bank (UOB), which offers gold savings accounts and sells physical gold bars and coins, said that the bank 'has seen a significant increase in demand for physical gold' by individual customers in recent months.

Currency traders usually view the dollar as a safe haven when the stock market is volatile. But now, gold may benefit as investors seek an alternative haven to the dollar.

Mr Grubb said: 'Gold has seen record demand since the credit crisis.'

Gold is durable and highly liquid. As an asset class, it is unique. The economic forces that determine the price of gold are different from those that determine the price of many other asset classes such as equities, bonds or real estate.

Because gold has low correlations with everything except silver and the US dollar, it is a very good portfolio diversifier for investors.

Mr Grubb said: 'As the depression gathers more pace and real interest rates are dropping all around the world, gold looks relatively more attractive because it's in short supply.'

Mr Joseph Chong, chief executive of financial advisory firm New Independent, said: 'For those with a five-year investment horizon, a gold fund could enter a portfolio. Gold should do well when the upturn comes in late 2009.'

Here are some ways to invest in the shiny yellow metal.

Gold jewellery

Perhaps the easiest way to buy physical gold is to walk into a goldsmith and buy 22-karat or 24-karat jewellery.

These shops sell standard 916 gold articles, which should contain at least 91.6 per cent gold, and charge according to the weight and market price of the gold.

But look out for hallmarks on your bling, like the jeweller's stamp and another mark indicating the purity of gold, to ensure you've got the real deal. Jewellery certified by the Singapore Assay Office will bear the office's stamp.

You can then sell the gold back to any goldsmith for cash, or trade in old gold jewellery for new ones.

Gold bars or coins

UOB sells physical gold that can be bought from and sold back to the bank with its daily buy-sell market quote. Gold bars come in a range of sizes, from small gold wafers to cast kilobars. Gold coins range from 1/20 ounce to one ounce.

UOB says the coins are legal tender with face value and are accepted and traded worldwide. Prices are based on the daily international gold price adjusted based on Singapore market conditions.

If you're a bigger investor, you can also opt for gold certificates, which are sold in kilobars - up to 30 kilobars per certificate. The certificates have no expiry date and can be exchanged for physical gold or cash whenever the need arises.

Gold savings account

If you're not interested in physical gold, the easiest way to buy and sell international gold is through a gold savings account. Again, UOB offers this service. Through a passbook, you can trade gold at prevailing market prices and transact any time during banking hours.

Unlike buying physical gold, the good thing here is your gains are not subject to the goods and services tax and the gold value can be exchanged for cash whenever the need arises.

Funds

A fund is a good way to get exposure to gold if you'd rather hire a fund manager to manage your portfolio for you.

One such fund is the Schroder Alternative Solutions Gold and Metals Fund, which has 35 per cent exposure to gold and 65 per cent exposure to other precious and base metals, and is actively managed in a long and unleveraged fashion.

The fund aims to outperform two indexes: the Rogers Metals Total Return Index and the Dow Jones AIG Gold Total Return Index, and has an internal target of 3 per cent above the performance benchmark per annum. It is distributed by Citibank, HSBC, OCBC Bank, Standard Chartered Bank and selected independent financial advisers.

ETFs are another alternative. These are baskets of stocks that typically aim to track the performance of a stock market index. They combine the features of a unit trust with those of a stock and can focus on certain asset classes or commodities such as gold and agriculture.

They trade like stocks on the bourse, so you can buy and sell them at market prices throughout the trading day.

Gold ETFs include SPDR Gold Shares, which offer investors a relatively cost-efficient and secure way to access the gold market by tracking the prevailing international gold price.

SPDR Gold Shares are listed on the Singapore Exchange (SGX) and are backed by more than 700 tonnes of physical gold bullion worth US$20.7 billion. You can buy and sell these shares through a standard brokerage account.

According to State Street Global Advisors (SSGA), which manages the SPDR Gold Shares, the average daily trading volume of the shares has increased by more than seven times year-on-year since they were listed on the SGX in 2006.

'Investors are seeking a haven and SPDR Gold Shares are a cost- effective, transparent and flexible entry into the gold market,' said SSGA.

Futures

A gold future is a deal to trade gold at amounts and prices decided now, but with a settlement day in the future. The actual exchange - when the buyer pays up and the seller delivers the gold - typically takes place up to three months later. This creates a margin, which could potentially be large - but so could the risk.

Suppose you had $5,000 to invest. You could buy gold bullion for $5,000, or you could buy $100,000 of gold futures. That's because your margin on a $100,000 future will probably be about 5 per cent, or $5,000. If the underlying gold price goes up 10 per cent, you would make $500 from gold bullion, but $10,000 from gold futures.

But don't forget you could lose $10,000 if the gold price fell by 10 per cent.

To deal with gold futures you will need to get a futures broker, who will be a member of a futures exchange, to manage your relationship with the market.

Because of the risks involved, however, futures may be best for market professionals who can make short-term speculations in anticipation of big moves.

This article was first published in The Straits Times on December 21, 2008.