Gold-mining stocks and funds focused on precious metals are up 17 percent the past year and gained an annualized 25 percent the past five years, according to Morningstar, crushing the return on stocks. Donald Doyle Jr., CEO of Blanchard & Co., which sells rare coins and precious metals, projects that gold will reach $1,150 an ounce this year.
Problem is, the metal's long-term record is more tarnished than a cheap bracelet. It's taken more than 27 years for gold to surpass its old $850 high. If the price had merely kept up with inflation, gold would fetch more than $2,000 an ounce.
It's true that gold prices don't move in sync with stocks and bonds, so it is a way to diversify your portfolio, but so are other commodities such as oil and hard assets like real estate - things that are actually useful in the world economy.
Instead of buying gold, allocate 5 percent to 10 percent of your portfolio to a widely diversified, low-cost commodity and natural resources fund, such as the Goldman Sachs Natural Resources iShares ETF or the T. Rowe Price New Era fund, both in the Money 70.
"You never want to put all your eggs in one basket, even if it's a gold one," says Stephen Horan, head of private wealth investor education at the CFA Institute.
The prudent conclusion: Gold is for jewelry and fillings. You want more variety for a portfolio.
Last updated January 17 2008: 5:45 PM ET
