(FORTUNE Magazine) – As a hedge against stock market losses, gold can perform tolerably well. In the short run, as Black Monday shows, nothing heightens gold's appeal so much as fear. After stocks nose-dived on U.S. exchanges and U.S. bombs burst on Iranian oil platforms, nervous investors in New York pushed gold spot prices up nearly $30 in two trading days, to $491.50 per ounce, the highest level in nearly five years. In one day, the U.S. Mint sold 30,000 ounces of American Gold Eagle coins, three times as much as in the previous week. Then, in late October, heavy selling by central banks seeking to boost the U.S. dollar helped send the metal's price tumbling to $466. Sudden events can send gold's price zigging and zagging in the short term, but over time, say the precious-metals analysts, prices will be influenced by the economy and inflation. Before stocks crashed, many who follow gold were moderately bullish, on the expectation that rising earnings and a strengthening economy would lead to a speedup of inflation. Now many economists worry that the stock market crash may shake consumer confidence, % induce a recession, and make inflation worries beside the point. This would be bad for gold prices because it could easily lead investors to shift from hard assets to cash. It would also discourage people from buying jewelry, which currently consumes about 60% of the gold coming onto the market. James Ainsworth of S.G. Warburg, the London investment banking firm, thinks these forces, along with declining purchases by central banks, could push gold down into the high 300s. Many analysts, however, believe that uncertainty in the financial world will continue to bolster gold prices. Says Jeffrey Nichols, a New York precious- metals investment adviser: ''The whole investment climate has become so unhinged that the first thing you have to be concerned about is preserving capital -- and gold does that better than anything else.''

CHART: NOT AVAILABLE CREDIT: SOURCE: COMMODITY EXCHANGE CAPTION: TWISTS IN THE YELLOW ROAD On the day of the stock market's big meltdown, gold's price leaped to a level not seen in nearly five years. But with inflation fears receding, experts wonder if investors will turn in their bullion for cash. DESCRIPTION: Gold prices per ounce, quarterly, 1983-1987, and daily, 10/14/87- 10/30/87.