The Power of Gold: The Risks and Rewards

Gene Allen is intimately familiar with gold ... as a color. Allen co-owns an industrial paint company, and a bright golden yellow is particularly popular with some of his clients. As an investor, however, Allen didn't touch gold for decades. And for good reason: The 56-year-old remembers the metal's 20-year losing streak. "I didn't know how to invest in gold, and none of the bankers I dealt with knew either," he says.

Allen's financial adviser was just as shy—until earlier this year, when he changed his mind and encouraged Allen to start buying. So Allen reluctantly joined millions of other Americans, putting $150,000 of his portfolio in new American Eagle gold coins from the U.S. Mint. He's already made a decent profit on the investment, but he's not exactly happy with it. Gold's value will probably go up, but it's "more just a hedge," he says.

Forget Ugg boots, Glee and Sarah Palin—if you follow the markets, you know that America's biggest obsession these days is with a shiny old friend. Gold's price, though it's tapered lately, has flirted with near-record highs, prompting everyone from hedge fund managers to barbers to talk about the yellow stuff. It's not just talk, either. Americans increasingly want their own personal hoard, and they're buying up coins, bars and bullion at a breakneck pace and storing it in bank vaults, hidden safes or other places perceived as safer than a shoe box. Mall-walkers in Boca Raton, Fla., can even buy gold out of a vending machine whose screen updates the metal's fast-moving price every 10 minutes. Over the past year, Americans have bought more than 100 tons of gold, spending an average of $81 million a week on the stuff. That doesn't include the billions more spent on exchange-traded funds that track the price of gold.
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But this isn't a stereotypical gold rush or even a typical investment mania. Yes, people are buying gold in record amounts, but in many cases they don't really feel good about it. Some are upset about having missed gold's massive price surge over the past decade and are worried about buying too late. Others fear they'll be targets for robberies or scams, or be branded as crackpots by their friends and neighbors. Some financial advisers, who are supposed to act in the best interest of their clients, are embarrassed to even talk about gold. "I didn't believe gold would be a good investment, and it turned out to be a great investment," says Dennis R. Marvin, a financial planner outside Cleveland who only grudgingly started recommending gold in 2009.

Even as it puzzles advisers, gold is intriguing behavioral-finance experts and infuriating investing pros. Those who are buying believe the nation's rising debt and the crises abroad could send the price even higher. At the same time, investors who have been bitten by two stock market crashes and a real estate bubble worry that gold could lose its luster just as fast. It all leaves gold with a unique status in the public imagination—equally fascinating and repulsive.

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