Four Ways to Play New Gold Rush

Holders of this extreme view don't really care if gold drops 60% in value from the time it is purchased to the time it might be liquidated for use: It's better than having no money at all. You might recall that following the Sept. 11 terrorist attacks on the World Trade Center and Pentagon, all paper securities in the buildings were destroyed, but a large vault of gold was recovered from the basement intact. And how many stories have we heard along the lines of the one told by former Lazard Freres chief Felix G. Rohatyn, whose family was able to escape from Nazi persecution only because his father had a few gold coins?

Stashing Gold in Your Portfolio

Eveillard, who runs the First Eagle SoGen Gold Fund, up 107% in 2002, says he thinks of gold as a way to maintain a margin of safety in one's personal asset mix. Let's say you have 70% of your net worth in equities and the market declines another 20% over the next two years amid hostile economic circumstances. That's a big hit to your net worth. If you have 5%-7% of your net worth in gold, meanwhile, and the metal doubles in value over that time due to the world troubles, then you have at least some profits to offset your loss. Eveillard thinks that this strategy will start to come into play more and more over the next six months to a year -- particularly by large state and corporate pension funds, which are currently not owners of the metal but are expanding their use of alternative investments.

There are several ways to own gold, or to participate in the bull move.

Buy shares of unhedged gold-mining companies, such as Newmont Mining(NEM Quote) of Colorado, Harmony Gold Mining(HMY Quote) of South Africa, Goldcorp(GG Quote) of Canada and Glamis Gold(GLG Quote) of Nevada. Gold stocks generally rise or fall three times as much as the physical metal, Eveillard says. If the metal rises 10% in a month, stocks are likely to rise 30%. Disadvantage: You're still buying paper certificates, not cold, hard metal.