(MONEY Magazine) – Okay. You are sure there won't be a nuclear war before Easter. You are certain inflation will lay low, and Uncle Sam will not default on his bonds. So why invest even a dime of your money in gold, the traditional investment of choice for those who anticipate hard times? You should do so for the same reason little old ladies in Pasadena buy collision policies even though they drive their cars only on Sunday: insurance against the worst. And in 1987 that insurance will be as important to own as ever, though the betting is that it will not boost your total wealth much, if at all, during the year. Gold is essentially a hedge -- an asset to own during bad times, such as when the stock and bond markets are getting whomped by inflation. Only if you believe that 1987 will be a notably woeful year of consumer-price increases should you invest in gold expecting it to increase vastly in value by year- end. Gold, though, is not without its attractions. Despite occasional wild swings in price -- gold sold for more than $800 an ounce in January 1980, compared with a recent price of just under $400 -- the metal is one of history's most reliable stores of value. An ounce of gold bought one good suit of men's clothing in England under the 16th-century reign of Henry VIII. It bought the same in America during the Great Depression. And although at its recent price it might not outfit you in fashions by Brioni, it will still get you a fair set of threads at Brooks Brothers. Thus in 1987, as almost always, financial advisers recommend that you devote perhaps as much as 10% of your portfolio to the precious metal, despite its lackluster prospects. Says Anthony Sorrentino, gold stock analyst at Standard & Poor's: ''Overall, I think gold will average $400 an ounce in 1987'' -- up from its recent price of $390 but producing only a tepid 2.5% gain. There are essentially three ways to buy gold. You can invest in shares of gold-mining companies or the mutual funds that invest in them; you can buy gold coins, whether they are recently minted or rare old varieties that have numismatic value; or you can buy bullion, the refined metal itself. Of the three, gold shares are often regarded as the most volatile. Because relatively high fixed costs are involved in the mining of gold, when the price of the metal rises, mining companies' bottom lines fatten exponentially and rapidly; a price decline produces the opposite reaction with comparably neck- wrenching speed. Secondly, there are the constant worries about South Africa, the leading Western gold supplier. If South African mines shut because of political or labor unrest, the gold price could skyrocket, while business as usual might hold it down. When you buy shares in gold-mining companies or the mutual funds that invest in them, notes Richard Young, editor of the monthly International Gold Reports newsletter (Federal Building, Thames St., Newport, R.I. 02840; $150 a year), ''all you're really holding is participation in a hole in the ground.'' If you nevertheless feel that the potential rewards of gold shares outweigh the risks, restrict yourself in 1987 to American or Canadian gold-mining companies, such as Battle Mountain Gold (sold over the counter at $19), recently trading near its 52-week high, or Echo Bay (American Stock Exchange, $22). Among the mutuals, USAA Gold (no load; 800-531-8000) and United Services New Prospector (no load; 800-824-4653) are worth a look. Both shun South African shares and, respectively, did 13 and four percentage points better than the S&P 500-stock index for the 12 months through November. That broad measure of market activity was up 27%. The trendiest way to invest in gold right now is through recently minted coins, notably the American Eagle, first issued in October. Buyers have been snapping up Eagles so fast that the U.S. Mint, overwhelmed by the response, temporarily had to suspend taking orders for the coins from wholesalers within two weeks of the Eagles' release. While one-ounce varieties are most popular in the U.S., gold coins come in sizes ranging from one-tenth of an ounce to 1.2 ounces. Other popular issues include the Chinese Panda; the Canadian Maple Leaf; the Mexican 50 peso; and the South African Krugerrand, though the market for it has shrunk dramatically since our government barred importation last year. If you are thinking about the Eagle as an investment, however, realize that you will pay a steep price over the value of the coins' gold content (see the chart on page 137). On many coins the premium, which represents the wholesaler's and dealer's markup, is between 3.5% and 6%. On coins such as the Chinese Panda, prized by collectors for their beauty, the premium runs as high as 7% to 8%. But because of the limited number of U.S. gold coins and the ferociously high demand for them, the premiums for Eagles are even higher -- 8% to 9% for one-ounce coins and as much as 35% on the scarcer one-tenth- ounce coins. Add to this cost sales tax and you have the makings of an investment that starts with a roughly 20% to 40% price handicap. For the time being, if you want to invest in recently minted gold coins, try those with low premiums, such as the Canadian Maple Leaf and the Mexican 50 pesos. Consider the American Eagle only if you can find ones being sold at around a 5% premium. Buying bullion is the low-cost way to get gold in your portfolio. And the best way to do that is by opening a metals account, available at most large brokerage houses and metals dealers and at some banks. When you buy gold this way, you will usually get a certificate of ownership stating that the institution is holding gold in your name in its vaults. You will pay between 1% and 3.5% as a front-end commission and another 1% when you sell. If you choose to go this route, deal only through your broker or a well-known bank. Representatives of unfamiliar firms who call you up cold may be fly-by-night operators offering to sell you gold that in truth they do not have. By contrast, if you want to take delivery of the metal, carting the bullion home so you have it on the judgment day, you can -- but it is usually a bad idea. As with coins, it is unwise to keep the stuff unprotected in your home. Storing it safely means either using a safe-deposit box (cost: $50 a year or so) or forking over between 0.5% and 1% of the value of the metal per year to a dealer to keep it for you. Then when you decide to sell your cache, you generally get the wholesale price minus $40 to $150, which covers the dealer's cost of assaying (testing for purity). All in all, while having the metal under your mattress may give you some sense of well-being, it is a costly, risky way to invest in gold. If you want to invest your time and money too, consider collecting U.S. numismatic coins, the rare old pieces collectors have valued ever since the coins stopped being minted in 1933. But do not embark on this course without thoroughly familiarizing yourself with the field by reading books and magazines on the subject, attending coin shows and talking with coin dealers and friends who are knowledgeable about numismatics. If you are starting from scratch, that process may well take you as long to complete as to turn a decent profit by investing in gold some other way. If you already have some numismatic knowledge, newsletter editor Young suggests uncirculated 1928 U.S. St. Gaudens double eagles graded MS 60 by collectors. They sell at coin dealers for about $695, roughly double the value of the gold in the one-ounce coins.

CHART: TEXT NOT AVAILABLE CREDIT: ILLUSTRATION BY MARK FALLS CAPTION: The high cost of gold coins For popular coins, the U.S. Eagle has the highest markup; the 1.2-ounce 50 pesos, the lowest. Total costs, excluding tax, are based on a gold price of $394 an ounce. DESCRIPTION: Bar graph using coins as bars, shows value relationships among four coins: a 1-ounce U.S.A. Eagle, a 1-ounce Chinese Panda, a 1-ounce Canadian Maple Leaf and a 1.2-ounce Mexican 50-pesos piece.