As with both the UK and US stockmarkets any market that is making multi year highs should again not be discounted. By the very nature of these multi year highs the long term trend has to be higher, and trying to pick a top relies far more on luck than judgement.

Remember that these long term trends (especially in currencies and commodities) are tremendously tenacious and prices can carry on far longer and stronger than most people realise (or weaker in the case of a bear market).

A classic example of this would be the bull run in technology stocks from 1996 onwards Who then really forecast or expected stocks in new companies to be priced in single digits only to move to several hundred dollars over the next few years?

The gold market right now though is certainly nothing like the technology boom of the last century. For one, very few people have got rich from it and therefore the general public knows little or nothing about the price of Gold roughly doubling since the 2001 bottom.

However, unlike the technology stocks there is not a steady stream of supply in the form of IPOs waiting to hit the market. To produce gold or any commodity you need far more than just an idea. This point could be a massive positive for the future because a limited supply (of stocks) means prices could easily be pushed far higher if say just 5% of the worlds investors decide to put in 1%-2% of their assets into the metal or into gold related stocks.

Gold Futures - 22 year Monthly Chart

$500 Has Been Broken

Markets love round figures and yesterday $500 was broken for the first time in about 20 years. This in itself is a significant point for gold investors because it means the general media will start to write and talk about the metal even more, so getting the word out to every investor in the world that Gold is a happening market and on the rise.

But $500 in our eyes could also prove to be a non event, an event even which marks the high in the metal for the next few months (give or take). Why, because if we look at the long term chart above back in both 1984 and 1988 around $500 was where it stalled. However old these 'levels' are they tend to work in forecasting support and resistance levels. This is why we wouldn't be surprised if canny investors in the metal are using the recent strength to sell up to 1/3rd of their positions.

Is It Too Late To Invest In Gold?

Some people are forecasting gold as high as several thousand dollars over the next 5-10 years. In this case the answer is it's far from late to invest. However, we would urge some caution because if there's one thing that has characterised the gold bull market over the last few years it's sudden and vicious reversals. In fact don't rule out a massacre of $10-$20 down in a single day sometime over the next few months.

The most prudent approach in our view is if you want to invest in Gold or gold stocks only do so on weakness.

Which Stocks To Invest In - Is It Better To Use Research Or Darts?

To be honest most people not involved in the mining industry know very little about the mechanics and fundamentals of mining or exploration stocks, including us. We therefore prefer one of two ways to find candidates in which to invest -

1) Find yourself a good gold advisor, there are many good newsletters around mainly based out in the US. One that we've found to be good is the fella who writes the www.zeallc.com column

2) Use darts! While this may sound strange remember that all boats are lifted with a rising tide so if the gold sector does explode even the share price of crappy companies are likely to do well (for a period anyway). However, we would actually be a little bit more scientific in our approach and create three different classes, i) blue chip gold/mining companies, ii) medium sized companies, and iii) junior mining and exploration firms

• Then try and find about 5 blue chips, 10 medium sized firms and 20 or even 30 juniors
• Then simply buy half the companies at random in each group
• Believe us when we say that this strategy will likely yield as good results if not better than spending hours on research or listening to a number of different gold gurus
• What we have found in our own trading is that bar one stock all the companies that we thought had excellent potential have performed so-so and the companies that we has less high hopes performed the best

Using this strategy you'd likely be investing in a significant proportion of US and Canadian firms which means that you will have some currency risk. We have this currency risk in our personal portfolios but don't worry about it too much because a) it might actually work in our favour and b) we think the potential gains on offer will more than make up for any losses that may happen from currency movements.

Note that investing in say 20-30 different mining stocks is not a problem if you use the right broker, we use www.interactivebrokers.co.uk and the commissions for small bargains are usually less than $0.01 per share with minimum orders of just $1.00. It's therefore possible to easily split say £5,000 across many different stocks.

Where To Invest In The UK

If you don't want currency risk and want 100% exposure to the actual price of gold then the best way is to buy Krugerrands at around £300 per 1 ounce coin. We've been buying from www.atsbullion.com in London who also do mail order (insured). The other way is to look at UK gold mining and exploration shares which are heavily concentrated on the AIM market.

Even The Bulls Are Bearish - Everyone Always Tries To Call A Top In Gold

One of the biggest problems about investing in Gold is all the negative talk with people always calling for a top in either the market or the mining shares. This has been a characteristic since the low was put in back in 2001. Perhaps the main cause of this is the fact that when the mining shares get hit they get hit hard often losing 10-30% in value over a matter of days. This is just one of the perils of investing in the sector so expect it to happen and also use these sudden sell offs to add to your holdings.

But listen to the market and its commentators over the next few years (if prices continue to climb) because when there's a 180 degree shift and few people predict declines with the majority suggesting that the only way is up, that will be the time to aggressively reduce your holdings.

Gold Market Summary

• $500 in our view is just a staging post with the next move going to $519-$530
• If you want to invest in Gold stocks then always look to buy on weakness
• Expect volatility in this sector, the share prices act like technology shares
• If you're a long term investor then the worst thing you can do is try and 'trade' your investments, instead keep it simple sell into strength and buy on weakness when the charts look bad (ie heading lower)
• If you want 100% exposure to just the price of Gold then buy Krugerrands