Gold rush -- 21st century style

If you subscribe to this dire scenario for the dollar then one way to hedge against a dollar that's losing value is by buying gold.

The caveat that applies when buying almost any investment also applies here: Do your homework first. Countless investors have been burned by gold. The metal peaked 26 years ago at $850. Anyone who bought at the high saw it sink to $255 in 2001, and even though the price of gold has risen significantly since, the investment is still under water.

Tom Grzymala, a certified financial planner based in Keswick, Va., says he recently dipped into gold for his own portfolio in the form of Vanguard's Precious Metals and Mining (VGPMX) fund.

"If you looked at Exxon (XOM) four years ago at $35, per share, you would have said it was too high. Now it's at $60, and some say it may go to $100. It's all relative. I realize gold is high, but it may be higher in six months or a year. I think it's safe and smart to put a small portion of a portfolio, maybe 1 percent to 3 percent, into gold. It's a little bit of a security blanket."

But if gold seems a bit risky for you, there's no shame in sitting this one out. In fact, it may be prudent.

William Suplee, president of Structured Asset Management, Paoli, Pa., says everyone definitely does not need to have gold in his or her account.

"I don't think gold is in a bubble phase, yet, but it's still curious. The commodities market and the stock market are the only places in the world where people wait for prices to go up before they buy and wait for prices to drop before they sell. When you have a sale at the supermarket you buy; you don't wait until the price doubles."

Suplee says the advent of exchange-traded funds, or ETFs, that have actual gold backing their shares will keep the price of gold relatively high.

"As more money pours into the ETFs, they'll have to buy more physical gold and that increases demand. But it doesn't mean you'll make a lot of money speculating on it. Historically, gold hasn't been that good of a diversifier. People think it's a good inflation hedge. If you're worried about inflation, buy I-bonds. You won't make a whole lot on them, but if inflation is what you're concerned about buy I-bonds."

If you're still interested in gold and find a golden security blanket in your portfolio appealing, you'll need to decide how to buy it. Gold is one of the few physical assets you can own in large enough quantities to make it worthwhile, but for most people there are better ways to take advantage of the metal's rising price. Bankrate's article on ways to invest in gold can help you decide what's best for your portfolio and your risk tolerance.


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