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Gold’s Newest Believers By JONNELLE MARTE Published: August 16, 2011

Los Angeles couple Chantay and Conrad Bridges have And yet, many bugs -- new and old -- remain been on the fence about buying gold for years -- even as convinced the still has new highs to set. the shiny metal was notching new highs. Their reason was Because gold tends to perform well during extended Investing 101: They didn't want to buy high and sell low. economic downturns or inflationary periods, both still But recently they've changed their minds, deciding like real possibilities in the U.S., some predict gold will many investors that gold still has plenty of upside. "The continue its upward march this year; it's already up 25% dollar is losing its value and if we're going to do it we year-to-date. For instance, J.P. Morgan Chase Bank is might as well do it now," says Chantay, a real estate calling for gold to reach $2,500 an ounce or higher by the specialist. "Even though gold is high it will get even end of the year. Adjusted for inflation, that's above the higher." metal's all-time high of $2,400 in 1980. Call them gold's newest converts. Last week's market Many investors, like the Bridges, are worried their upheaval following the unprecedented downgrade of savings could deteriorate if the dollar falls, and are using debt has convinced some of gold's most- gold as a hedge. The Bridges plan to move 10% of their skeptical bears to suddenly switch teams. Indeed, they assets out of stocks and other investments into gold. helped drive some $2 billion into precious metals Those fears were stoked last week when Federal Reserve exchange-traded funds in the week ending August 10, officials said they would keep interest rates low through marking five straight weeks of inflows, a turnaround from 2013 and hinted they could consider additional measures the outflows seen in May and June, according to fund ("think QE3")to help spur the economy -- two measures researcher Lipper. Scott Carter, chief executive officer of that could drag down the dollar's value, says Robert , a gold retailer in Santa Monica, Wiedemer, managing director of Absolute Investment Calif., says gold purchases at his shop have increased by Management, a wealth management firm in Bethesda, 20% since the S&P downgrade. "We're seeing the average Md. Wiedemer has increased his clients' exposure to guy go into the gold market," says Phil Streible, a senior precious metals, including gold, from 20% to about 22% market strategist for MF Global. on average in recent weeks. For many experts, of course, this everyman rush to gold is For other converts, buying gold is a simply a response to the ultimate contrarian indicator. When hard-core the gyrating stock market. Despa Robinson, a 28-year-old skeptics are converted, so the thinking goes, the market managing director of a music label in the U.K., increased has entered pure bubble territory. In fact, they say it's his holdings from a few ounces to about 35% of his close to popping: Gold prices fell 2% from their recent investing portfolio in the last two weeks. "The stock high of $1,780 an ounce after the news last week that market's been shaky lately," he says. "I'm looking to CME Group, a futures marketplace, is requiring preserve my money." institutional investors to put up more cash as collateral Even some metal fans, however, are hedging their bets. before they can make bets on gold. But those prices have Some advisers, like Heidi Schmidt, wealth manager at already bounced back, gaining $42 between Monday and USAA Financial Planning Services, are using the new Tuesday and settling at a new record of $1,782. "It's very highs to take profits, buy beaten down stocks or to simply tempting for investors to want to buy things that have hold more cash until the market calms down. Fisher, who gone up recently, but that shouldn't be the reason for has about 10% of his clients' portfolios allocated to buying gold," says Gregg S. Fisher, chief investment commodities including gold, says he is increasing equity officer of Gerstein Fisher, a based exposure for some clients and thinking about investment advisory firm. redistributing the proceeds from gold to other .

1 of 2 For investors getting into gold for the first time, strategist Streible recommends a slow but steady strategy. Consider cutting down exposure to equities by 0.5% a month and moving that money into gold or precious metals ETFs, which are easier to own than gold bars, which must be stored in a safe deposit box and require some skills to accurately value, says Streible. Investors can bet on gold by buying futures through their brokers; these derivatives give investors the right to buy gold at a certain price and gain value as the price of the metal surpasses the price on the contract, and lose value when the price drops below it. Advisers caution, however, that despite its many year rally, gold can still experience steep price drops. Other risks: it doesn't provide income and can at times be difficult to sell. "It's not for everybody," says Carter. "This is not for money that you need to pay your bills tomorrow." ###

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