The Smartest Way to Invest In Gold

In January of 1980, the Dow Jones Industrial Average was at 850, and gold was worth $850 an ounce. Twenty-two years later, the Dow is up ten times, while gold (at $320) has been cut in half.

With such a dismal 22-year performance, you might wonder if investing in gold stocks is a wise move. The answer is "yes" - but not under typical circumstances. Here's what I mean.

All you need to really know about gold is this: when everything else is getting clobbered, gold does well. Of course, the opposite is true, too when everything else is doing fine, gold does poorly. The problem for gold has been, from 1982 to now, everything else did just fine.

Since March of 2000, however, stocks have been clobbered. Meanwhile the XAU Index, the index of major mining stocks, is up 20%. And the price of gold has risen from about $280 to about $320 an ounce in that same period. What this tells us is that gold's traditional role hasn't changed, even though nobody has paid much attention. Nowadays, a 5% or greater portfolio position in gold makes sense, to diversify your risk and give you a boost up in your investments when everything is going down.