NEW YORK (CNN/Money) - I'm considering selling my stocks and investing my money in gold. What do you think of this move?

-- Lucy, San Francisco, Calif.

Not much, Lucy, not much. Oh, I know that when times get scary, people rush to the security of hard assets like gold, and that prices have been booming lately as it appears ever more likely that the U.S. will go to war with Iraq.

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On the days leading up to Secretary of State Colin Powell's speech outlining the case for war last Wednesday, for example, the price of gold bullion in New York climbed to just under $380 an ounce, it's highest level since 1996.

And gold stocks have also been among the hottest performers in an otherwise dismal market. Through the 12 months ending in early February, for example, Morningstar's Precious Metals fund category (which consists mostly of funds that own gold mining and refinining stocks) was up a stunning 46 percent -- that's right, 46 percent at a time when the S&P 500's total return over the same period was a negative 21 percent.

So why am I not urging you to unload your stock portfolio now (IMMEDIATELY!) and snap up some gold bullion or gold stocks or funds?

Several reasons.

First, they're notoriously volatile. That's great if you manage to buy them before one of their occasional spikes in price. Obviously, the people who bought gold funds a year ago are congratulating themselves (deservedly or not) for being geniuses.

But if past gold cycles are any indication, people usually start buying only after the runup. Prior to the Gulf War in 1991, for example, gold prices soared to just under $405 an ounce. But people who bought in expectation of further gains were disappointed, as the price of gold began sinking thereafter because investors became convinced the war would be a short one.

Big gains in gold stocks and funds have also lured investors in, only to disappoint them soon after. Gold funds gained more than 90 percent in 1993. But they lost 48 percent over the next five years.

Who knows, maybe this time will be different. Maybe gold bullion and gold stocks and funds will continue to post big gains. I wouldn't count on it, though, since gold isn't the type of investment that generates steady gains over time.

Gold funds on fire Fund  Ticker  1-year return  First Eagle Gold  SGGDX  65.5%  Van Eck Int'l Investors Gold  INIVX  52.4%  Tocqueville Gold  TGLDX  45.4%  American Century Global Gold  BGEIX  39.5%  Fidelity Select Gold  FSAGX  37.6%   *Returns through Feb. 5, 2003  Source: Morningstar, Inc.

It tends to give its gains in spurts with some extended down periods in between. Buy in at a high, and you can spend a long time waiting to get back to even. Of course, maybe you'll be smart enough to know when to jump in and then get out at the right time. But to my mind, that strategy is more akin to speculating than investing.

I suppose you can make a case for moving a bit of your money into gold -- say, maybe 5 percent or so. The rationale for doing that is that gold prices move in sync with stock prices. So even though gold itself is highly volatile, adding some to your stock portfolio can lower your portfolio's overall volatility because stocks and gold don't zig and zag at the same time.

But frankly, I'm not a big fan of using gold as a diversifier because I think you can find other investments that provide decent diversification but with better long-term return prospects than gold. And if I did use gold to increase my portfolio's diversity, I'd use gold stocks or, better yet, gold mutual funds, not gold bullion, which has higher transaction costs that cut into your gains (assuming you have gains).

So if you want to join the gold rush, my advice is keep your investment small, and stick to gold mutual funds. And don't forget that the same forces that drive up gold prices and gold stocks quickly, can push them down just as fast.

Walter Updegrave is a senior editor at MONEY Magazine and is the author of "Investing for the Financially Challenged." He can be seen regularly Monday mornings at 7:40 am on CNNfn.