The Guide: Prospects for gold prices suggest you think carefully before joining current rush

But some experts are warning of a gold bubble and investors need to be aware of certain principles before they invest in gold.

Yuill Irvine, managing director of Dunedin Independent, shares his top tips on investing in gold.

1 PERCENTAGE HOLDING A minimum 10 per cent holding of gold is fast becoming de rigueur in managed general investment portfolios. Some fund managers argue it represents insurance against the almost inevitable depreciation of paper money and that it is not would seem to undermine this argument. Remember, gold does not generate interest or a dividend.

2 COINS AND BARS This is unquestionably the best method of buying gold. South African Krugerrands and British Britannias represent the most popular coins, guaranteeing near 100 per cent purity, although the price of modern gold coins will reflect a very small premium to the spot price. Coins can be bought from stockbrokers and banks. Nonetheless, the element of security has to be considered if this investment option is chosen. Coins are normally available in four sizes up to one ounce. Most gold coins are legal tender and this may have added attraction for some owners.

3 MINING SHARES Gold shares are bought for leverage reasons where some may be changing hands at a premium to intrinsic value and some at a discount. In short, an investment in shares may or may not reflect the true value of the mine or development. So volatility is the feature and this is, therefore, the preserve of analysts and fund managers. However, it is true that share movement will nearly always outperform the gold price – but on the downside as well.

4 UNIT TRUSTS If equities are preferred, the alternative to buying gold shares is an investment in a gold and precious metals-orientated unit trust. This will give investors a spread of gold mines, thus reducing the risk. However, initial and annual management fees are likely to erode net asset value. The best known specialist unit trust in the UK is the BlackRock Gold and General Fund.

5 GOLD IN A SIPP Not so well known is that self-invested personal pension (Sipp) owners can include gold bullion in their pension. However, owners will not be able to keep the gold at home to impress the neighbours. Instead they should use funds such as Aliquot Gold Bullion managed by Castleton Management. The holding must be in 100 per cent pure form and it must be kept professionally by a specialist third party.

6 EXCHANGE TRADED FUNDS Gold ETFs have been pressure marketed since the gold price commenced its recent sharp rise and have now become a very popular short-term investment for those seeking protection from depreciating currencies and worse, perhaps as a catastrophe emerges. In summary, an ETF is a derivative in most instances merely tracking the gold market with no gold collateral or title to an underlying asset.

This is an instrument which must be bought with care from a stockbroker, who will be able advise.

7 GOLD OPTIONS Tremendous leverage can be exercised with a gold "call" or "put" option.

This is when an investor purchases the right to buy or sell a gold-mining share at an agreed point in the future. So anecdotally, if an investor believes that a major country is about to experience a sovereign debt crisis and that this will trigger a sharp upwards move in gold price, much greater exposure to the upside of the gold market can be achieved.

8 GOLD FUTURES Strictly for the professionals, gold future contracts are mainly used by gold mining companies to lock in the value of their production in the future. Future contracts are mainly traded in London, New York and Sydney.

9 NUMISMATIC GOLD COINS This will allow a cautious investor intent on value preservation to gain the double benefit of buying and owning historic or newly minted coins and safeguarding overall portfolio value at the same time.

In most instances, collector coins will trade at premium to intrinsic value and this has been a strong feature of this market in recent years as the gold price increases.

10 SPREAD-BETTING Finally, there is CGT-free spread betting – an anomaly which a growing number of day traders and the like will be taking advantage of in view of this week's 10 per cent hike in CGT for higher rate taxpayers. But with eye-watering leverage possibilities and the potential of very big gains at low cost and vice versa, this is punting gold rather than investing in it. Shrewd investors should avoid this activity.