MANY advisers recommend investors keep a small proportion of their portfolios in gold. Although the price has shown little activity for years, gold is a form of money. It can be easily transported and its popularity in jewellery is unsurpassed. Those wanting to invest in gold usually have a choice between actually buying the precious metal, opening a gold account with a bank, buying shares in gold mining companies directly, or seeking exposure through a gold sector fund. The second quarter of this year saw a continued decline in the gold price from its highs in early February. By the end of the quarter, the gold price had fallen to US$380 (HK$2,937) per ounce, a fall of 4 per cent for the quarter. Gold mining stocks fell even more over the quarter, with the FTA Gold Mines Index down about 14 per cent. Australian mining companies were the best-performing sector, despite the Australian dollar's continued strength against the US dollar. Corporate activity was the key to this out-performance, with smaller miners becoming acquisition targets. Analysts expect this activity to continue, particularly in medium capitalisation stocks which offer growing production and good exploration potential. African mine stocks fell in line with the FTA Index. For South African mining companies, the local gold price has reached new highs due to the big fall in the rand against the US dollar. This currency movement offsets the high cost of production in South Africa, although overall production is in decline as reserves are used up. North American miners were the worst performing in the sector, depressed by poor first quarter earnings and a spate of public share offers. Overall, demand for physical gold continues to exceed supply, with central bank activity the wild card as always.