“Fire is the test of gold; adversity, of strong men,” the Roman philosopher Seneca once said. With volatile financial markets serving up heaping portions of adversity, gold remains a time-tested hedge against declining stocks and a weak dollar. So in the interest of a well-diversified portfolio, it never hurts to hold some of the shiny yellow metal.

The truest test of gold’s investment value is cast in the crucible of global economic mayhem. Gold prices might have backtracked in September, but they’re still up nearly 40% since last year. Why? A weak dollar and persistent fears that the European sovereign debt crisis will ignite rampant inflation is giving the metal its second wind. Gold prices reached almost $1,700 per ounce this week on concerns that U.S. and euro zone leaders can’t — or won’t — make tough spending cuts to reduce government debt and deficits.

If you believe in the “why” part of gold’s value proposition, the next question is how. Investors have a few options here: physical gold (bullion or coins), bank-issued gold certificates, derivative instruments like gold futures, gold mining and exploration stocks and exchange-traded funds.

While many goldbugs prefer bullion or coins for the high liquidity (or because they like the feel of that precious metal in their hands), some investors balk at the physical storage and security hassles. Bank-issued gold certificates often are based on unallocated gold — if the bank fails, your interest is a share of its liquidated assets, not a specific bar of gold.

Gold futures contracts can be a windfall for speculators, but their complexity makes them a nonstarter for most conservative investors — particularly those at or near retirement age. Mining and exploration stocks might be solid investments depending on their fundamentals, but it’s an indirect gold play compared to other choices.

For those reasons, products like ETFs (which like equities are traded through exchanges) are a good way to play the gold market. As with any investment, there are pros and cons to buying into an ETF.

On the upside, gold ETFs give investors exposure to gold prices without the storage and security challenges. They typically trade as easily as stocks.

On the downside, some products like RBS Gold Trendpoint ETNs (NYSE:TBAR) and PowerShares DB Gold Double Long ETNs (NYSE:DGP) are very complex, futures-based instruments. Other ETFs, like Global X Pure Gold Miners (NYSE:GGGG) and Global X Gold Explorers (NYSE:GLDX) invest in mining and exploration companies — and are not backed by physical gold.

All things being equal, a physical gold-backed ETF will deliver performance that best replicates the actual price movement of gold bullion. So here are three gold ETFs to consider as the precious metal trends higher:

1. SPDR Gold Trust (NYSE:GLD). This is the largest gold ETF with some $71.82 billion in assets. GLD holds 100% of its assets in physical gold bullion and has average daily trading volume of nearly 24.6 million shares. At $163.46, it is trading 29% above its 52-week low in January, and a share price equals 1/10th of the price of an ounce of gold. GLD boasts trailing five-year returns of 23.33%, and its year-to-date return is 28.11%.
2. IShares Gold Trust (NYSE:IAU). This ETF boasts net assets of $9.75 billion, and 100% of its assets are in physical gold bullion. Average daily trading volume is just under 13.5 million shares. IAU operates by delivering gold in exchange for baskets of iShares that are surrendered to it for redemption. At $16.38, IAU is trading nearly 28% above its 52-week low in January, and a share price represents 1/100th of an ounce of gold. Trailing five-year returns are 23.3%, and year-to-date return is 28.2%.
3. ETFS Physical Swiss Gold Shares (NYSE:SGOL). The ETF also holds physical gold — in this case, in Swiss vaults. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses. With total assets of $1.63 billion, 100% of its assets are comprised of physical gold; average daily trading volume is just under 306,000 shares. At $166.57, SGOL is trading nearly 28% over its 52-week low in January; its share price represents 1/10th of the price of an ounce of gold. SGOL began trading in the U.S. in September 2009. Trailing one-year return is 23.56%, and year-to-date return is 13.91%.

As of this writing, Susan J. Aluise did not hold a position in any of the investments named here.