At a time when investors are finally coming to appreciate the safe haven status that gold has always been there to provide during periods of financial upheaval and uncertainty, gaining reliable and cost-effective exposure to physical gold bullion remains a complex undertaking.

The smart money has turned to gold in a big way, with high-profile hedge fund managers like John Paulson and Richard Chilton turning to the popular SPDR Gold Shares (NYSE: GLD) exchange-traded fund. With reported holdings of more than $50 billion worth of gold, the GLD -- as it is often called -- has ballooned to eclipse even the gold reserves of nations like China and Switzerland.

A rising tide of uncertainty
In the midst of all that growth, however, revelations about the degree of leverage built into the London paper gold market has raised concern among many gold investors regarding the sanctity of reported gold holdings. Meanwhile, the fact that the fund's custodian -- HSBC (NYSE: HBC) -- is one of two bullion banks alleged by the Gold Antitrust Action Committee (GATA) to have held dominant, market-making positions on the COMEX futures exchange, leads to a natural curiosity regarding potential conflicts of interest.

Into this boiling sea of uncertainty, Sprott Asset Management launched the Sprott Physical Gold Trust ETV (NYSE: PHYS) in March. Offering the reassuring option of redeeming units for actual physical gold, and coming as it does from a firm that has been an outspoken critic of the alleged price manipulation by the bullion banks, the Sprott Physical Gold Trust ETV (let's call it PHYS) joins a short list of vehicles that I have highlighted for investors seeking the greatest possible assurance of exposure to unencumbered, actual, physical bullion.

The price of confidence
The greater degree of confidence in the sanctity of bullion holdings that sends some gold investors to PHYS does not come without a price, and this week's nondilutive, 24.8-million-unit offering (nearly $280 million with the over-allotment) provides the perfect opportunity to highlight one of the primary trade-offs.

Whereas the SPDR Gold Trust will closely track the price of gold, the closed-end structure of Sprott's version can cause shares to reach substantial premiums over the net asset value of the underlying holdings.

Shares of PHYS dropped by 8% on Wednesday -- a day which saw gold prices rising -- following the announcement of the share offering. This provided a reduction in what had grown to be a truly bloated premium. Although periodic share offerings may provide attractive entry points by reducing that premium, it still remained nearly 11% as of yesterday, even after that sudden drop.

Death and (or by?) taxes
Another complicating factor for Fools to consider when selecting a preferred bullion proxy is the tax implications. I am not a tax expert, so all I can do is relay the guidance provided by the issuers of the instruments in question. The following discussion refers only to reported treatment under the U.S. tax code.

Although Alan Greenspan has conceded that gold is a currency, for tax purposes the IRS treats gold as a "collectible." Accordingly, SPDR Gold Shares advises that gains from the GLD are "subject to a capital gains rate of 28% if held for more than one year."

Good luck finding this next scenario in a tax preparation software package. The PHYS is classified by the IRS as a Passive Foreign Investment Company (PFIC), and as such the company informs investors that they may be well-advised to file form 8621 to make a "QEF election." Provided such election is properly made, capital gains from the sale of PHYS units would ostensibly be taxed at the rate of just 15%.

What is a Fool to do?
If these complex issues surrounding the bullion proxies have you wondering whether they are worth the peace of mind that comes with exposure to a safe haven, rest assured that you are not alone. Although I view bullion exposure as a critical element of a well-balanced strategy for precious-metals allocation, I feel that quality mining companies are too often overlooked by those investors who may be looking to gold or silver for the first time in their investing experience.

Following an extended period when bullion has outperformed the mining equities, my view is that the miners are poised for significant outperformance of even the strong outlook for precious-metals prices themselves.

Looking back to the smart money, we find Sprott Asset Management investing the Sprott Gold and Precious Minerals Fund in many of the very same producers that I have been highlighting for Fools for quite some time. Goldcorp (NYSE: GG) remains my favorite among the majors, while midtier miners IAMGOLD (NYSE: IAG) and Yamana Gold (NYSE: AUY) present a compelling combination of growth and value.

I have tracked the infamous fate of developing prodigy NovaGold Resources (AMEX: NG), but its fortune is shifting notably now that John Paulson has accrued a 9% stake in the company (overtaking the 8% stake held by billionaire George Soros).

However investors decide to forge their allocation to precious metals, and notwithstanding the peculiar challenges associated with the bullion proxies, I can think of no worse fate for an investor than to approach the remainder of this decade with no exposure to precious metals. I invite you to share your own views in the comments section below.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.