Gold and other precious metals are assets that are both tangible and liquid (i.e. easily traded), unlike real estate which is tangible but not liquid, or company shares and bonds which are liquid but not tangible.

Considering its high density and high value per unit mass, storing and transporting gold is very easy. Gold also does not corrode. Historically, it was also very easy to verify that an offered coin had the density of gold through the use of Archimedes' principle. Today, however, some metals are denser than gold yet cheaper. While some think gold deserves special treatment based on its cultural value and use as money, others consider gold a commodity, like copper or lead.

For centuries gold has been used as a store of value. Gold advocate Bill Bonner argues in "Empire of Debt" that no other investment has the wealth preserving power of gold when your frame of reference extends to thousands of years. Bonner points out that other assets are dependent upon a certain government or political climate to retain value, appreciate, and not be excessively taxed or nationalized. Gold is largely independent of political climate (with the exception of laws specifically confiscating gold as happened during the Franklin Roosevelt administration).

Fundamental analysis

Investors may base their investment decisions on fundamental analysis. These investors analyze the macroeconomic situation, which includes international economic indicators, such as GDP growth rates, inflation, interest rates, productivity, and energy prices. They would also analyze the total global gold supply versus demand. Over 2005 the World Gold Council estimated total global gold supply to be 3,859 tons and demand to be 3,754 tons, giving a surplus of 105 tons. Others point out that total mine production is only about 2,500 tons each year, leaving a 1,300 ton deficit that must be made up by central bank or private sales.[14]. While gold production is unlikely to change in the near future, supply and demand due to private ownership is highly liquid and subject to rapid changes. This makes gold very different from almost every other commodity.

Stock analyst Jim Jubak recently chose gold as one of his "stock" picks for the next 12 months giving it a price target of $870 per Troy ounce by July 2008.

Gold versus stocks

The performance of Gold bullion is often compared to stocks. They are fundamentally different asset classes: gold is a store of value whereas stocks are a return on value (i.e. growth plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil [Source: Investments (7th Ed) by Bodie, Kane and Marcus, P.570-571]. Since 1800, stocks have consistently gained value in comparison to gold due in part to the stability of the American political system. This appreciation has been cyclical with long periods of stock outperfomance followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains throughout the 1980s and 1990s. The ratio peaked on January 14th, 2000 at a value of 41.3 and has fallen sharply since. William Anton III wrote in the 2004 issue of Jefferson Coin and Bullion "...downward movement in the Dow/gold ratio is unlikely to stop precisely at the mean trendline. The extreme distension of the the 90s will likely overshoot to the opposite extreme in the current cycle.

Technical analysis

As with stocks, gold investors may base their investment decision partly on, or solely on, technical analysis. Typically this involves analyzing chart patterns, moving averages and market trends, in order to speculate on the future price.

Using leverage

Bullish investors may choose to leverage their position by borrowing money against their existing gold assets and then purchasing more gold on account with the loaned funds. In order to keep the cost of debt to a minimum, these individuals would normally seek a loan in the currency with the lowest LIBOR, which as of April 2006 was the Japanese yen. This technique is referred to as a "yen-gold carry trade". Leverage is also an integral part of buying gold derivatives. Leverage may increase investment gains but also increases risk, as if the gold price decreases the investor may be subject to a margin call.