Sacred Gold will install both an updated Sacred, and the Underworld Expansion "over the top." It's similar in a way to how BG 2: ToB re-worked BG2: SoA. You will still retain the contents of the original character slots, should you elect to uninstall Underworld and reinstall the original Sacred game.
I strongly recommend visiting Ascaron's Sacred website on a regular basis to keep abreast of all patches. If you like playing online and suddenly find you are unable to load in, you'll only have yourself to blame.
You will of course prefer the Underworld expansion to the original game, as it adds additional content, new races, new powers, etc.