Gold is hot right now.  It seems like every radio talk show host is telling listeners that they should be buying gold.  Some are saying our country is heading to a meltdown and you need to own gold because it's the only asset with "real" value.  Others say that with all the government spending that is going on, inflation is inevitable and you should own gold as a hedge.  So maybe you should be buying.  But then you see all the cash-for-gold meetings and parties and think maybe you should be selling.  What's an investor to do?

The first thing to do is to remember that all those radio talk show hosts are getting paid big advertising dollars to give you "unbiased" investment advice.  And the cash-for-gold meetings have a financial motive also.  They want you to cash in your old gold for less than full value so they can feed the demand.

But let's think about that demand for a minute.  Because of the recession, the actual demand for gold is down.  We use gold for jewelry and in some industrial applications.  In the current economic climate, both of those areas are suffering.  People are buying less jewelry and industry is hurting.

So, if demand is down, what is keeping the price so high?  Investor demand.  A recent article in the Wall Street Journal called it "panic-driven" demand.  Since 2003, the price of gold has tripled.  I am getting more and more calls from clients asking if we should be buying.

The furor over gold brings to mind the dot.com era and the calls I would receive from "little old lady" clients asking why we didn't own more tech stocks.  It also brings to mind the real estate zaniness from the middle of this decade when investor demand set off bidding wars when a property went on the market.

When investor demand gets so far out of whack with actual demand, you have a recipe for a bubble.  Bubbles eventually burst…and it's usually not pretty.

Am I saying that gold is in a bubble right now?  Not necessarily.  The wildcard in the discussion is China.  If they decide to stop buying US debt and instead start buying gold, the price will increase dramatically.

So, back to the original question…What's an investor to do?
We believe that you should own some gold as part of a well-diversified portfolio.  Gold is part of the commodity asset class.  We own a 3-7% commodity position across our portfolios.  And we gain that exposure through an index ETF (exchange-traded fund), which also gives us exposure to other precious metals, industrial metals, agriculture and energy.

So, while we are not suggesting that you back up the truck and load it up with gold bars, we don't want to ignore the asset class either.