With the price of gold inching toward $500 an ounce for the first time in 18 years, investors might be in a quandary: whether to buy gold bullion or shares in gold mining companies.

"We have done better owning gold than shares," said Jay Taylor, publisher of an industry newsletter, J Taylor's Gold & Technology Stocks.

"In the '70s there were dramatic profit margins — a 10 percent move in the gold price would result in maybe 30 percent increase in share price," he said. "If anything, it's gone the other way and now there are shrinking margins."

However, Peter Spina, who operates goldseek.com, a gold industry Web site, said more investors appear to be getting into gold shares, attracted more by profits than the security that often comes with owning the precious metal.

"The Newmonts and Freeports will always attract institutional funds, the big money," he said. "Traditionally, stocks have led the gold price by three to six months. But recently we are seeing more investment capital entering the market."

Shares in the so-called seniors — the big companies that mine gold — are at or near year highs. But there were mixed results in the third quarter as spiraling costs, especially for energy, nibbled at profits.

Denver-based Newmont Mining Corp. (NEM), the world's biggest gold producer, reported a drop in profit, citing not only high energy costs but also a shortage of miners and environmental protests in Peru that delayed exploration.

And Placer Dome Inc. (PDG), Canada's No. 2 gold producer, said it was hurt by higher energy costs and a loss on hedging against metal price fluctuations.

But Toronto-based Barrick Gold Corp. (ABX) saw third-quarter profit more than triple, and Freeport-McMoRan Copper & Gold Inc. reported higher profit and forecast fourth-quarter gold sales would more than double.

Newmont stock is trading at roughly 55 times estimated 2006 earnings — above the sector average of 53. Barrick is at 51.5 and Placer Dome at 81, according to Reuters data. On Wednesday, Placer Dome rejected an unsolicited $9.2 billion takeover bid from Barrick.

Gold closed at $495.70/496.40 in London on Friday after hitting a fresh 18-year high of $496.75. U.S. gold markets were closed Thursday and Friday for the Thanksgiving holiday.

Asked if a rise in the gold price automatically attracted more stock investment, Taylor was skeptical. "It's not been the case in the last six months as energy costs have gone up faster than the gold price. If there is a pullback in energy costs, then I would be more optimistic."

He said bullion and gold share investors were two distinct groups. "The bullion guys are very sophisticated ... and American investors are clueless with respect to gold."

Frank Holmes, chairman and chief executive of U.S. Global Investors, which holds mining and gold company stocks, is bullish on mining company equities.

"The gold market is in deficit, demand is greater than supply from the mines," he said. "It takes time to explore and develop mines, which would account for the takeovers in the industry. There is a scramble for assets now."

In the short term, he sees a correction, with gold maybe passing through $500, then dropping back. "The real test will be if it goes through $520-$525, in which case it probably runs up to $650," Holmes said. "We're in a bull market for commodities, about one quarter the way through a 20-year cycle."

Taylor agreed that gold is in a bull market. Asked whether he would choose to invest in physical gold or gold company stocks, he said, "I would want some bullion for its pure wealth as it retains its value and is a means of liquidity.

"On stocks, if costs are not rising faster than the gold price, then you should start to see wider profit margins."