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TIPS are not as good as gold when it comes to fighting inflation. In many respects, they are even better.

Treasury Inflation Protected Securities, or TIPS, are designed to protect investors from the erosion of purchasing power that rising inflation can cause. In an inflationary environment, TIPS, which pay a semiannual coupon, tend to outperform most traditional fixed-income investments, because their par value is adjusted to account for changes in the consumer price index.

For instance, if the CPI rises by 0.2%, the value of the TIPS bond would also climb by 0.2%. If the CPI were to decline, the bond's value would fall very little, because the government guarantees the original investment.

Gold, on the other hand, does not pay a

dividend. Until it is sold, gold bullion just languishes in a safety deposit box, while the metal succumbs to the market's price swings. And despite its recent run up through the $720 mark, gold is not the all-encompassing, "pure play" answer to inflation many investors think it is.

"Gold is influenced by a lot of other factors and drivers, like industrial and consumer use," says Ken Volpert, portfolio manager of the $10.6 billion

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Vanguard Inflation-Protected Securities fund, in a recent TV interview. "If it's inflation you are worried about, then TIPS are what you want."

Want more? Check out TV video. Ken Volpert, of the Vanguard Inflation Protected Securities fund, explains the benefit of TIPS.

And a lot of people have been wanting TIPS lately. The average TIPS fund is up 4.9% year-to-date, according to


, making it the top performer in the fixed-income category.

Volpert, whose fund is up 5.7% year to date, says TIPS are "fairly priced right now." He points out that there are $430 billion in TIPS currently in a market that has been growing annually by about 10%, so "supply is good, but not overwhelming." Meanwhile, on the demand side, overall performance has improved so "we have been seeing a nice bid underlying the market."


Federal Reserve

rate cut like the last one, however, would really boost TIPS, says Volpert.

"I'd be concerned if the Fed eases a lot more, because the Fed was talking tough about inflation and then surprised the market with a deeper-than-expected rate cut," says Volpert. "That justifies long-term concerns about inflation."

Those concerns are evident in the break-even rate, which in bond parlance refers to the difference between the yield on conventional Treasury securities and that of comparable TIPS. The current break-even rate on 10-year TIPS is 2.3%, which has climbed since this summer, but is still below April's 2.5% reading, and well below last year's peak of almost 2.8%.

More troubling for inflation watchers, however, is the five-year forward rate, which measures inflation over the long term. That rate is now at 2.6%, up from 2.53% before the Fed's dramatic rate cut, as well as some relatively benign August CPI data.

"The CPI is backward looking, but the market looks forward," says Volpert. "The Fed rate cut was dovish to the point where many people are wondering if more easing is on the way."

And perhaps more interest in TIPS.

Before joining, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.