Wall Street Journal
by Jonnelle Marte

Los Angeles couple Chantay and Conrad Bridges watched the price of gold rise for years but never invested, afraid they would be buying at too high a price. But recently, as gold notched new highs, they--like many investors--changed their minds. "The dollar is losing its value and if we're going to do it we might as well do it now," says Chantay, a real estate agent.

The market upheaval of recent weeks has even the most skeptical investors rethinking their strategies, and gold's relentless climb--it closed yesterday at $1,888.70 per troy ounce, up another 2.15%--has been fueled in part by these new believers. "We've got mom-and-pop investors making a mad dash," says Tom Roseen, a senior analyst at Lipper.

Online brokerage E*Trade says its clients traded three times more shares of the biggest gold exchange-traded fund in August, compared to the same period in July, with more people buying than selling. And Scott Carter, chief executive officer of Goldline International, a gold retailer in Santa Monica, Calif., says his company has seen sales of coins, bullion and other physical forms of gold rise about 20% since Standard & Poor's downgraded U.S. government debt on Aug. 5.

For many experts, of course, this is the ultimate contrarian indicator, a sign that gold prices have neared the top. When retail investors rush in, the thinking goes, the market has entered bubble territory. "People are racing to get into it regardless of the price, just because everyone else is," says John Gugle, a financial adviser in Charlotte, N.C.

Gold's reputation as a safe haven burnishes its allure, especially when stocks and bonds look unstable, as they do now. But the metal is hardly immune from its own peaks and crashes. After hitting an inflation-adjusted high of $2,400 per ounce in 1980, gold prices fell more than 50% over the following two years; it has yet to return to that inflation-adjusted high. More recently, other supposed safe-haven assets have suffered setbacks. After peaking at $49 per ounce in late April, the price of silver fell 30% in about a week.

Already gold may be showing early signs of weakness. Last week, institutional investors pulled back slightly, says Mr. Roseen, in the first week of outflows for gold funds since early July.

Yet because gold tends to perform well during extended economic downturns or inflationary periods, which are both still real possibilities in the U.S., some predict gold will continue its upward march this year. Analysts from J.P. Morgan Chase Bank say gold could hit at least $2,500 an ounce by the end of the year, which would be a new record in nominal and inflation-adjusted terms.

For investors getting into gold for the first time, Phillip Streible, a senior market strategist for MF Global, recommends a slow but steady strategy. Consider moving 0.5% of your overall portfolio each month out of other sectors and into gold or precious metals ETFs, says Mr. Streible, with a maximum exposure of 10%.

Write to Jonnelle Marte at jonnelle.marte@wsj.com

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