Four Ways to Play New Gold Rush

Gold has become the color of hope for paralyzed investors in the past year. Since the start of 2002, shares of the public companies that dig the stuff out of the earth have marched forward 50% to 300% to the drumbeat of war as all the major equity indexes have plunged.

It has become the investment of choice, not just for wizened old men on park benches and 'fraidy cats in the Adirondacks, but for everyday professionals saving for retirement, daytrading speculators and sober fund managers seeking a hedge against uncertainty. Whether in the form of 100-ounce bars, futures, stocks or coins, the metal has come to be seen as the antistock of the post-dot-com world. It's a combination of security blanket, insurance policy and Lotto ticket. The metal with moxie.

A Prebubble Buying Opportunity

But the market for gold around the world is looking ever more like the market for technology stocks, circa 1997. Though not quite there, it seems on the verge of becoming the topic of soccer mom conversation, like stock tips at cocktail parties back in the day.

Gold is not at all in a bubble stage. The physical material has gone from $250 an ounce to $360 an ounce in the past few years, hardly a massive move for a commodity priced at $800 in 1980. But it is certainly heading in that direction, and at $368.40 an ounce, it hit a six-year high last Friday. All 10 of the top-performing mutual funds in 2002 were gold or precious-metals sector funds, and they're doing well again so far this year.

It is probably not too late to join this crowd, if you are so inclined and are patient enough to wait for prices to recede a bit. After all, it's still a pretty small crowd. The total net assets of those top-10 gold funds amounted to less than $850 million through the end of 2002. That's a tiny fraction of the size of a single mainstream fund, such as Dodge & Cox Stock, which weighs in at $12 billion in assets. And gold has not yet made an appearance on the cover of a major news magazine, or become the subject of a television drama -- the two iconic levels at which true manias are immortalized.