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TheStreet Open House

Don't Overreact to the Gold Move

Stocks in this article: GLD IAU

NEW YORK ( TheStreet) -- TheStreet's Lindsey Bell is with Oliver Pursche, president of Gary Goldberg Financial, discussing what has happened to gold since the FOMC announcement on Wednesday and where investors may find value in it.

With gold at its lowest level in over two years and below that key psychological level of $1,300, many are wondering if it's time to head for the hills or if this is a bottom, according to Bell.

However, Pursche says that right now it's like trying to catch a falling knife. But he also pointed out that it's been a rough time in gold for the past couple of months, not just the last two days.

His suggestion to investors is to think: What is the purpose of owning gold in my portfolio? For some, he has the answer, adding that it's a long-term inflation hedge.

If that's what it's being used for, Pursche believes now is a good time for buyers to step back in, although he does acknowledge that the metal could go lower short term.

He pointed to the continued quantitative easing from the Federal Reserve, as well as further involvement from European central banks and the Bank of Japan as reasons that long-term inflation is worth hedging against.

Pursche added that SPDR Gold ETF (GLD) or iShares Gold ETF (IAU) are fine for playing the long-term rise in gold, citing the low costs of the exchange-traded funds.

He concluded that a 2%-4% portfolio allocation is appropriate and that investors can expect annual returns of 6%-8% from the metal over the long term.

-- Written by Bret Kenwell in Petoskey, Mich.

Bret Kenwell currently writes, blogs and also contributes to Rocco Pendola's Weekly Options Newsletter. Focuses on short- to intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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