Gold has shown its mettle, but how high can it go?

Gold’s image may be changing as its price settles in above $1,000 an ounce and continues to set records.

The conventional view sees the shiny metal as often-reliable protection in tough economic times and a long-term hedge against inflation and a weakening dollar, since its price tends to rise at the same time.

Lately it’s been a lot more. The price has tripled since 2003 and doubled since 2005, trouncing stocks this decade. The Standard & Poor’s 500 index, a barometer of the stock market, is down 27 percent since 1999 while gold is up 266 percent. No wonder ads portray gold as hugely profitable.

Should investors still consider buying it now, or is this another bubble that’s about to burst? If it’s indeed a good time, how do they go about it? Here are some answers to questions about the outlook for prices, the best way to hold gold and whether other metals are worth eyeing as well.

Q. Aren’t gold prices likely to decline again as the economy starts to pick up steam?

A. As with stock prices, there’s no consensus about where gold is headed.

Some gold-watchers predict a price of $2,000 or higher within the next few years. That’s based on the scenario that rapidly rising U.S. government debt will lead to high inflation, sending more investors fleeing into gold to protect their dollars. An improving economy also should help boost demand for gold jewelry.

Not everyone’s a gold bug, however, especially at these prices.

Some say investing in gold is excessively risky. They note that after rising to a record $850 an ounce in 1980, gold took 28 years to climb back to that level again, badly underperforming inflation during that period. “Attempting to project or capitalize on price movements in gold is speculation, not investing,” maintains Steve Condon, director of investor advisory services for Truepoint Capital in Cincinnati.

Because of its volatility, then, it might be prudent for a conservative investor to limit exposure to gold – or any commodity – to 5 percent of a portfolio.

Q. If I decide to invest in gold, what’s the best way to hold it – in gold funds, gold mining companies, gold bullion or coins?

A. It depends what makes you the most comfortable. No way is certain to be the safest or most lucrative.

Some people like the idea of actually owning physical gold. Those who do have the option of taking possession of it or paying a fee to store it somewhere. A typical fee might be 4 to 5 percent, meaning an investor would be paying roughly $1,100 an ounce for bullion based on a recent closing price above $1,050.

Why pay a fee? David Beahm, vice president of economic research at Blanchard & Co., a New Orleans-based precious metals investment firm, says bullion gives you the closest proxy to the price of gold. Gold bullion coins are a particularly liquid and relatively safe way for investors to get involved in gold, since the coins are legal tender and you can keep them in a safety deposit box. Jeffrey Nichols, managing director of American Precious Metals Advisors, Cortlandt Manor, N.Y., says the most popular and widely recognized coins are the American Eagle, Canadian Maple Leaf and Austrian Philharmonic.

Gold mining stocks such as Barrick Gold Corp. and Newmont Mining Corp. can be affected by other factors in the market besides the price of gold. That could be good or bad – precious metals mutual funds can take actions that accentuate changes in gold prices.

Gold exchange traded funds, meanwhile, have the drawback of annual fees but are easy to get in and out of. Among the choices are SPDR Gold Shares (symbol GLD), iShares’ COMEX Gold Trust (IAU) and the newly launched ETF Securities Physical Swiss Gold Shares (SGOL).

Q. Are there other metals besides gold that I should be looking at as an investment?

A. Like gold, silver is a stable investment alternative to the falling dollar. Unlike gold, there’s a lot of it, so it’s still pretty cheap at just under $18 an ounce. That may make it more appealing to the investor with limited funds to invest.

Platinum also is poised to take off if car sales recover. More than half of all platinum ends up in catalytic converters. It is more expensive than gold per ounce, however, with prices topping $1,300.