NATION Investors again take a shine to gold, thanks to strong market performance

The volatile metal has delivered profits the past two years.
MILWAUKEE JOURNAL SENTINEL
In ancient times, kings craved it. Today, athletes compete for gold medals. We mark wedding vows by exchanging bands of gold. Even the streets of heaven are said to be paved with it.
"From the beginning of time, there's always been this lust and this hunger for gold," said David Derzon, a West Allis, Wis., coin dealer who buys and sells gold.
But gold's status as an investment isn't as clear.
For some, owning gold bullion or shares of gold stocks is an important hedge against inflation and downturns in other investments. For others, gold is seen as an investment whose price is too susceptible to major swings.
At the moment, at least, gold is back on more investors' radar screens, thanks to increases in the per-ounce price of the yellow metal over the past two years and strong showings for mutual funds focused on gold and gold mining.
Mutual funds, prices
In 2002, the average gold and precious metals mutual fund was up 63 percent while the Standard & amp; Poor's 500 index was down 22 percent, according to the mutual fund tracking firm Morningstar Inc. of Chicago. So far this year, the average gold and precious metals fund is up about 39 percent, while the S & amp;P has risen about 19 percent, said Lynn Russell, an analyst who covers gold funds for Morningstar.
Meanwhile, the price of gold itself has been on more of a yo-yo path in 2003, but it is still strong as the dollar has weakened against the euro and some other currencies amid the U.S. trade deficit and a fragile economic recovery.
"Gold started the year around $340 an ounce, dropped to $320, went up close to $390 and dropped back down again," Russell said.
"It's highly volatile. That's one of the key points," Russell said of investments in gold. "Whether you are dealing with bullion or whether you are dealing with mutual funds or stock, they are really more volatile than most investors can handle."
'Gold bugs'
Not everyone agrees with that assessment, especially investors and analysts nicknamed "gold bugs" for their fondness for gold as the most rock-solid type of money on Earth.
Ian McAvity, who helped create the Central Fund of Canada, a mutual fund that is 98 percent invested in gold and precious metals, said that for most investors, gold acts as insurance to a portfolio because it remains a thing of value no matter how uncertain the world becomes.
"You're going to sleep a little better by owning it. That's sort of the traditional role for gold," said McAvity, who publishes a newsletter in Toronto called Ian McAvity's Deliberations on World Markets.
But there are times when having a bigger stake in gold is prudent, he said.
"When you've got a demonstrable rising trend, then there is room for increasing the exposure to try to participate in the trend," he said.
In the short term, McAvity said he thinks the gold market might slow because shares in gold mining companies this year "have had a huge run, and the shares have gotten a little bit ahead of themselves."
Long term, however, he said he is enthusiastic about gold because the U.S. dollar has been weakening, and the trade and budget deficits and Federal Reserve policies will help keep it that way.
"As I'm bearish on the U.S. dollar, I am bullish on gold," McAvity said.
Balance
Morningstar's Russell said no investor really needs to own much -- if any -- gold. And chasing performance isn't a good way to pick investments, she said.
Even gold bugs stress not to go overboard on an investment in gold, but to have a balanced portfolio.
"It's a philosophic decision and an investment decision," McAvity said. "The old very conservative Swiss bankers were said to have 5 percent [in gold]. I know other people who say 2 percent and others who say 10 percent."