Should You Buy Gold?

A question of risk

The question any potential buyer of gold needs to ask, however, is whether those concerns are already reflected in the price of the metal. While gold today seems like a safe haven, it can be quite unforgiving if you time your purchases wrong.

In January 1980 — a time not unlike today, when high inflation and the Iranian revolution helped make the United States look economically and politically weak — gold reached a peak of $850 an ounce. When the worries faded, the metal dropped to the $300-to-$500 range for close to a quarter of a century.

When inflation is factored in, gold still hasn't regained its 1980 value, despite its recent run. By some estimates, it would have to climb to $2,200 an ounce to do that.

And while it could still get there, some savvy investors have their doubts. James Holt, an investment strategist at BlackRock, the world's largest money manager, told Reuters that the company's global allocation fund usually keeps about 5 percent of its money in gold to balance out risks in other kinds of assets. But he now thinks it's time to take profits.

"Gold and bonds are doing really, really well, and we're making profits on them and putting these into the asset classes that are getting cheaper and cheaper, which are definitely equities," Holt said.

He says, asked on Wednesday, that BlackRock has a number of products where investors can express their views on the commodity. With respect to his personal account, he views gold "as a little too rich."

The bottom line is this: If you want to buy gold because you hope to make a killing over the next few months, you're taking a big chance.

A hedge against disaster?

Financial planners say the better way to look at gold is not as a short-term speculation, but as a kind of financial disaster insurance policy — what independent consulting economist Ed Yardeni calls "a hedge against out-of-control governments and their reckless fiscal and monetary policies."

In that view, you keep a small portion of your money in gold — no more than 5 percent, especially at today's prices. If the global panic gets worse from here, gold will rise, offsetting the devastation in the rest of your investments. If markets settle down, as they probably will, your bet on gold will lose, but you'll make money elsewhere in your portfolio.

And, frankly, for the sake of the economy and your long-range financial health, that's the outcome you want.

Also of interest: 7 things to do when the market slumps. >>

Eric Schurenberg is the financial editor at large for AARP the Magazine and a former managing editor of Money magazine.