This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.
My first job on Wall Street was as a gold options trader on the floor of the COMEX in the late 1980s. It was then that I realized the power of a metal that has very little use except for jewelry ... and to provide some semblance of calm for investors. But gold went out of fashion in the 1990s as investors were happy to dump the yellow metal for the technology stocks.
When I was managing money in the early 2000s, I recall that one of the most "aggressive" purchases that I made for my clients was gold at a price of about $300. Clients rarely questioned trades, but when they saw GLD appear in their accounts, I sure did hear about it. I tried to explain that I thought that gold would be a great long-term hold, not because I am a gold bug but because gold represents security in an insecure world.
Flash forward to today; the most active August contract for gold hit a record price of $1,254.50 an ounce and made new highs against other currencies as edgy investors continue to seek safety in both gold and U.S. government bonds. While this is a nominal record, the all-time high for gold was in 1980, when it hit $825.50 an ounce or the equivalent of $2,180.27 in 2010 dollars.
If you are tempted to jump in to gold, even at these levels I suggest that you use an exchange-traded fund, like GLD. For most, less than 5 percent of a portfolio in gold is plenty of risk! Here are the "5 Worst Ways to Buy Gold".
Jill Schlesinger is the Editor-at-Large for CBS MoneyWatch.com. Prior to the launch of MoneyWatch, she was the Chief Investment Officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.