HOW TO PLAY IT: Gold hits $1600 per ounce

NEW YORK, July 19 (Reuters) - The price of gold topped $1600 for the first time this week on a winning streak analysts predict could lead the precious metal to $1625 over the next two weeks and well above $1700 by the end of the year.

The question is: Is it time to jump in? If so, how?

BUY PHYSICAL GOLD

The upside of buying actual gold bars and ingots is that when the price of gold rises, the value of a gold block tracks the gains on an almost one-for-one basis, unlike other assets which only track the value.

"People want to put their money into hard assets, which retain a value when currencies lose value," said Tod Mcelhaney, president of LaSalle Futures Group in Chicago.

But while physical gold has the most direct value, the downside is that it is also more difficult to offload should investors want to let go of the asset.

"It's unlike an ETF or futures contract where you can call a broker and sell it," Mcelhaney said.

If investing in physical gold, it is important to consider the near-term volatility of gold prices. The size and run of the current rally will largely be driven by the outcomes of the U.S. and European debt troubles.

"A break-through on the debt ceiling talks or a brightening of the situation in Europe could lead to a correction in price. So you have to be very agile," said James Steel, chief commodity analyst at HSBC in New York.

Spot gold XAU= hit a new record at $1609.51 an ounce on Tuesday, but pulled back and traded Tuesday at $1585 an ounce.

BUY ETFs

Exchange-traded funds (ETFs) tracking gold stocks are also poised to benefit from the run-up in bullion futures, with silver ETFs likely to move in tandem, said Matt McCall, president of the Penn Financial Group and editor of The ETF Bulletin in New York.

The SPDR Gold Trust ETF (GLD) has been his biggest holding since 2006, when he saw the precious metal as a hedge for safety against a weak U.S. dollar and inflation worries.

"I still believe all of those reasons from five years ago," McCall said. "I think the gains will hold. We could see some volatility and swings chasing the performance a bit, but if you look at the longer-term trend of gold, it looks positive."

McCall said he also sees the iShares Gold Trust (IAU) and iShares Silver Trust ETF (SLV) as other good ways to play the rise of gold. The iShares gold index was down 0.2 percent and the iShares silver index was down 0.3 percent on Tuesday, following Monday's sharp gains.

But the downside of investing in a gold-related ETF is that the gains are not always direct and can sometimes lag the rise in gold prices.

McCall noted that the Market Vectors Gold Miners ETF (GDX), which tracks gold miners, had been lagging gold prices a bit, despite having a good run into the end of April.

BUY GOLD STOCKS

Gold-related stocks are also a good play when companies benefit from the run-up in gold prices.

But Elizabeth Collins, a market analyst with Morningstar Inc in Chicago cautioned that gold equities do not always benefit to the same extent that physical gold does, given the impact of currency fluctuations and mining costs that companies face.

"When gold prices are high, they're making more money, but you're not necessarily seeing that reflected in the stock prices," she said. "Over the past two years, shares of gold miners have not been performing as well as people would like given the rally in gold prices."

Barrick (ABX.N) shares were down 0.4 percent on Tuesday, while Goldcorp Inc (GG.N) shares fell 0.9 percent and Agnico Eagle (AEM.N) shares lost 2.6 percent. All three stocks rose on Monday following gold's rally above $1,600.

Because a lot of the rise in gold prices has been denominated in U.S. dollars, it's important to look at where gold miners are producing to see whether the companies will draw big gains. A depreciation of the U.S. dollar relative to the currencies of the producer countries could limit the gains from high gold prices by elevating mining costs.

(Editing by Chris Sanders and Jonathan Leff)