Gold prices keep setting new record highs, and investors are becoming cautious about investing in precious metals because of their 11-year winning streak.
But advocates say the limited supply of precious metals makes them worthwhile investments despite their lofty prices. Even as gold prices reached a record high Thursday of $1,447 an ounce, silver hit its highest price in 31 years of $38.16.
Commodities like gold and silver have long been treasured as a store of value because they exist in limited quantities, unlike fiat currencies such as the U.S. dollar, the yen and the euro, which can be printed at will with no limitations by central banks.
The precious metals market remains relatively small. The gold and silver market is valued at around $100 billion; the stocks and bonds market measures in the trillions of dollars.
The U.S. Dollar Index, which measures the dollar's value against other major currencies, stood Thursday at 75.64, just shy of its 52-week low of 75.46. The index hit its lowest point of around 72 in the fall of 2008.
"I honestly think we are starting the second leg of the precious metals bull market that started 10 or 11 years ago," said James DiGeorgia, editor and publisher of the Gold & Energy Advisor in Boca Raton, Fla.
"You can't wait for a pullback in prices. You have to buy and have a position in place," he said. "When this market breaks, it could happen in a period of two or three weeks. Not having any gold at this point is a mistake."
A group that lobbies for the gold mining industry agrees with that assessment.
"As an organization, the World Gold Council does not see any evidence to support the theory that gold is too high and it will come down," said Jason Toussaint, managing director U.S. and investments for the World Gold Council in New York.
Toussaint said he recently visited a gold mine in South Africa, where workers are drilling more than two miles underground to find gold. It's becoming exponentially more expensive to pull out new gold.
"Gold is not an endless asset that is easy to find," he said.
Still, not everyone is convinced that gold and silver belong in every investment portfolio.
Advisers at PNC Financial Services suggest clients resist the current gold rush in favor of domestic and international stocks, hedge funds, inflation-protected treasury bonds (TIPS), real estate investment trusts (REITs) and other commodities such as oil, natural gas and natural resources.
"Precious metals are trading at or near all-time highs and thus do not provide good risk-reward opportunities," said Mike Saghy, investments director.
The problem with pure metals, he said, is the difficulty in estimating the intrinsic value of an asset like gold that produces no cash flow.
Adrian Ash, head of research for BullionVault in London, said his firm has calculated the present fair value of gold, based on its inflation expectations, at $3,800 an ounce. He said the price of gold and silver appeared due for a correction.
"The reason gold is rising is the real returns paid on cash is negative," Ash said. "You put money in the bank today, and you know it will be worth less 12 months from now. ... Your purchasing power is shrinking."
Michael Arold, a portfolio manager for Covestor, an online platform that allows individuals to mirror real trades of professional investors, sees the long-term trend for gold and silver as positive. But silver, he believes, is a much more compelling asset because of its many industrial uses.
Silver is used in jewelry, silverware, electronics, batteries and even in the solar power industry. And new uses for silver are being found, including its medical use in effectively destroying the cell walls of bacteria, fungi and other microbes.