I hold part of my wealth (for want of a better word) in gold shares...specifically Perseus Mining shares.
www.perseusmining.com.au
IMO this is one of the most promising companies I have invested in. Nuigini Mining (subsequently Lihir gold) was another. I have been investing in shares since 1984 and learnt many trading lessons and made many mistakes.
Perseus Mining is an ASX (stock code PRU) and TSX listed company with gold tenements in Ghana and Ivory Coast (and in excess of 7 million ounces of gold delineated to date). They will have 12 drilling rigs operating simultaneously later this year and are planning on drilling 220,000 metres (i.e. 220 kms of drilling) over 12 months. Persueus are probably in the crosshairs of the large gold majors and are ripe for takeover...particularly after they receive environmental planning approval which will allow construction of their Ayunfuri mine in Ghana to commence (which should happen some time in March/April). They have between $95m and $100m cash in bank and about 350m shares on issue (last traded at $1.76).
One of my reasons for having $ in gold shares (and not all in property) is my belief that economies continually printing paper money will result in a falling value of fiat curencies (particularly $US) and rising inflation. Some commentators (such as Warwick Grigor BGF Securities) have been saying gold could reach US$5000/ounce in the next 2 years. There woud be a considerable multiplier effect * on the value of gold stocks (as the profit from mining would climb far quicker than any increase in gold price provided the company's production is mostly unhedged ).
It is difficult holding gold stocks as the price of gold and gold stocks are quite volatile-gold price moving up and down at the moment (from $1180 highs to mid $1000's then back again).
http://www.kitco.com/charts/livegold.html
Silver could be a similar bet for falling value of fiat currencies and rising global inflation.
Ajax
*What I mean by saying multplier effect can be explained by the example below:-
Assume gold producer sells gold at current spot price of $1100/ounce and that operating costs of the mine are $550/ounce. The proft is therefore $550/ounce.
If gold price doubles to $2200/ounce, the profit will now be $1650/ounce (i.e.$2200-$550).
Profit has trebled.
Furthermore a higher gold price will enable the gold miner to mine less high grade ore bodies that up till now have not been economical.
This is why I would prefer to be holding shares in an unhedged gold producer as opposed to physical gold in a rising gold market.