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Gold rush spurs fears of a bubble

As gold prices have soared in recent years, many financial advisers have, for the first time, added a "gold strategy" to their clients' investment portfolios.

Many said the decadelong rise in prices for gold, which has hit its stride since 2008, has persuaded them to recommend limited investments in precious metals as a way of boosting clients' returns and hedging against inflation.

Having precious metals in a diversified portfolio "makes sense, because that's the only thing that has been really working for investors for a while," said Roger Johnson, an adviser in Altamonte Springs, Fla.

But given gold's recent volatility -- prices are down more than $280 from their early September peak of $1,923 an ounce -- you won't find many advisers suggesting that you start chasing gold profits right now. And you won't find any of them telling clients to load up on actual gold bullion -- the better option, they say, is to go with gold-related exchange-traded funds, which don't require storage and, unlike mutual funds, can be bought and sold during the trading day.

People who get in at the end of a speculative bubble such as the current one are hurt more than anyone when prices collapse, warns Susan Spraker, president of Spraker Wealth Management in Maitland, Fla. Spraker has been putting her clients in gold for several years -- mainly SPDR Gold Shares (ticker symbol GLD) -- using a consistent buy-and-sell, profit-taking strategy.

"But for our new clients this year, we have not bought into GLD," she said. "It is too late to buy now -- now is the time to take profits."

Investors' current interest in gold is not surprising: The market's "spot price" for the precious metal hit a record $1,923.70 an ounce during trading Sept. 6 -- and is up 34 percent from a year earlier, even after last week's plunge.

The run-up in precious-metals prices has created a gold rush from Wall Street to Main Street. Some advisers aren't as sure as others that the run-up in gold is about to end. Prices could still go much higher, even amid an already historic bubble, said Christina M. Pinto, a certified financial planner with MPC Wealth Management in Orlando.

"However, you absolutely need a strategy if you are considering buying gold at these levels," she said. "There is nothing wrong with selling and taking profits -- you just don't want to be the last to the exit should things look to unwind."

Also, there's that minority of local advisers who, when interviewed, said they aren't buying into the gold rush at all. They cite the precious metal's long history of price crashes, especially from January 1980 to June 1982, when prices for the metal plummeted 65 percent.

"As a financial adviser, I can't allow myself to get caught up in the hype," said John E. Pinkley, an Orlando certified financial planner with Raymond James Financial. "It doesn't matter what the hype du jour is -- I just can't go there, because hype is emotionally driven, and most sound investment decisions aren't made emotionally."