Hi there...I use gel food color and luster dusts. I have also used the Wilton spray color which is great for large surfaces. It also prevents you from having to color the fondant before sculpting it. I always dilute the gel colors and dusts with vodka and it works well for me. I think water will melt away the fondant. If you look at my photos...my King cake and the Hunter cake were fondant painted this way.
Take care!
With the kahlua and cognac I already have to flavor the frosting, dh is going think I'm drinking more than baking! 
Water will break down the fondant, eventually...vodka or lemon extract or gin, etc. has such a high alcohol content that it evaporates and dries much more quickly, so it doesn't have time to just sit wet on top of the fondant. I've also used the vodka/luster dust combo to paint on top of crusting bc....it worked great....had to use a very, very light hand though, as to not crush the buttercream. 
adven68 what did you you to make the gold color on your king ?????
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