If you just started paying attention to the price of gold when it climbed past $500 an ounce, you’re not alone. After hitting its peak a couple decades ago, gold as an investment has been in the doldrums and pretty well ignored by most investors.

Now with both inflation and the price of gold up, some are wondering if it’s time to dive in. Have you already missed the boat, or is there time to invest in gold and make a profit?

“I think it’s still early for gold. These cycles tend to last for several years,” says Mark Skousen, economist and chairman of Investment U, a free investment newsletter.

“I was just at a gold show in San Francisco and there was a small turnout. As far as the individual investor is concerned, gold isn’t that popular. I’m a churchgoer, and if people ask me about gold I’ll be suspicious. But no one has come up to me and asked me about gold, so I think there’s still more room to grow.”

The price of gold has been rising pretty steadily since 2001, and Skousen expects that trend to continue, but it may not be on an unbroken upward diagonal.

“If there’s inflation, gold will probably do well,” he says. “The question in 2006 is whether inflation is still a problem. If we look at the consumer price index it looks like inflation is coming down and not as bad as it was. Gas prices are down or moving off their highs.

“So while I think gold should move higher, it won’t necessarily be as good as it’s been the last couple of years. There will be a less substantial return. If the current trend continues, gold could be $700 by the end of 2006. I don’t expect that but it certainly could see $600.”

Another factor is the value of the dollar.

If you bought something at Target or Wal-Mart a couple years ago, the store took a cut and then sent your money to China. China then sent it back to the United States to buy government securities. That picture is changing as foreign governments show signs of cutting back on their purchases of U.S. Treasuries.

What’s bad for the dollar can be good for gold, and Martin Weiss, editor of Money and Markets, says the dollar is headed for a crash.

“Our trade deficit is out of control and traditionally that’s bad for the dollar. Foreign central bankers are raising their interest rates and that means a foreign CD will have higher rates than a U.S. CD. Foreign stocks are more attractive because they have a higher growth rate. There’s a lot of money overseas that has the choice of whether to invest in China or Japan and if it shifts out of the U.S., that’s bad for the dollar.

“If you have a substantial portion of your money tied to the dollar and the value of the dollar goes down then everything you have in dollars is suffering from the decline. That’s not just your portfolio but also your bank accounts, insurance policies and the equity in your home.”

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.