Some investors feel that gold will continue to go through the roof and is a sensible place to put a great deal of money. It is easy to sympathize with this view since it plays on well-grounded fears of the government printing unlimited amounts of new paper money, the relative decline of U.S. business and consumer influence worldwide, and the possibility that the U.S. dollar may be replaced as the world's currency for trade. But there are also a number of reasons why gold could go down from its current elevated levels.

The first is that gold, like petroleum, can now be traded with a push of a button because it is available as a "stock." Hedge fund investors are the seventh-largest holders of gold in the world through their use of one particular exchange traded fund on the New York Exchange, whose stock symbol is GLD. This has pushed the price of gold higher because as it goes up, it generates more and more excitement by constantly being on the news as making new highs.

The catch comes when there is some breaking news that is bad for gold. Then, hedge fund managers, who are fundamentally short-term speculators, will want to get out in a hurry. It is possible for gold to crash, as oil did last year when it went from $150 down to $50 per barrel in less than a year due to speculators being forced to cover their bad bets by selling oil quickly.

Secondly, gold used to be one of the only ways to protect against inflation. Now, investors can buy several investments that guard against runaway cost of living increases. One choice is to purchase government sponsored Treasury Inflation Protected Securities — TIPS — which adjust to the Consumer Price Index. Investing in natural resources and commodities are other ways to fight inflation. There are myriad investment vehicles — from agricultural foodstuffs
to natural gas, from industrial metals to precious metals — that can be easily bought on stock exchanges. Each investment avenue has its pitfalls, so our philosophy is to build a diversified portfolio of these inflation hedges that includes gold, but is by no means exclusively made up of gold.

Thirdly, we believe gold will never again be used as a standard for major currencies. The days when governments were only allowed to print money that could be backed with hard assets are gone forever. There simply isn't enough gold to accomplish the job, and no central bank anywhere will allow its domestic policies to be dictated to by how much ore they can pull out of the ground.

There is a common investment fallacy that people fall into by thinking that the future will be a repeat of the past. We are skeptical that the government will pay back the
$20 trillion it has borrowed with anything but inflated dollars, but when we hear people talk about gold as a panacea, with similar fervor to how they used to describe real estate, our antennae go up. The problem isn't a simple one and the solution is likely to require diversification into a wide variety of traditional and alternative investments.

Rob Rikoon is the CEO of The Rikoon Group, a registered investment advisory firm. He can be reached at 989-3581 or rob.rikoon@rikoongroup.com.