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Gold recorded an alltime high of $1,150 this week before sliding on dollar strength, profit taking by investors. The current rally was led by large-scale purchases of the yellow metal by Central banks and presently doubts about US economic outlook has only added to the safe havel appeal of gold.

With the U.S. dollar's decline, and now reaching multi-year lows against other major currencies, Gold has continued shine, up 32% year-to-date. Historically gold prices have traded almost inversely of the U.S. dollar. Since 1971 the U.S. government removed its currency off the gold standard, and the value of the U.S. dollar has steadily declined. Many countries are now looking for ways to diversify out the U.S. dollar in the event of a total meltdown.

In 2008 during the market's panic as a result of the Great Credit Crisis, gold prices softened as investors flocked to safety in the U.S. dollar. However, it finished up 6% for the year. And only this year on October 6, did gold break out of a 15 month trading range to over $1,000 per oz. So, is gold really that high? Some gold analysts argue that gold,could run as high as $2,300 per oz or more in the coming years.

There are many factors pushing gold to new highs; the U.S. dollar being the major factor. But look around the world…India just bought 200 tons of gold from the International Monetary Fund (IMF) this month and China has been on a tear buying gold and other natural resources lately. China is even encouraging their citizens to buy gold and silver. Talk about jumping in front of a wave; that alone could do it.

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Barrick Gold Corp, Canadian gold mining giant, recently closed its hedge book and said that global output has been falling by roughly 1m ounces a year since the start of the decade. "There is a strong case to be made that we are already at 'peak gold'," Aaron Regent, president of Barrick recently told The Daily Telegraph at the RBC's annual gold conference in London. Low supply and high demand make good recipie for an investment.

Many pundits point to the recent surge in gold prices as a temporary phenomenon and that once the U.S. economy gets back to growth mode, gold prices will retreat. But what if this takes longer than we think? What will this do to our dollar and gold prices? If the economy continues to lag and deflation becomes more of a serious issue, gold has a pretty solid performance record duing these times as well. For example, in 1929, gold went from $20.63 in 1929 to $34.69 in 1934.

What we do know is that gold can help provide diversification within a portfolio and provide a hedge against inflation and global downturns. Gold is the real world currency. It has been a safe-haven, while paper currencies have come and gone throughout the centuries. The Oracle of Omaha has recently suggested that the government's (hot printing press) actions could cause inflation worse than during the 1970's.

While the price of gold has increased, I believe it still has room to run. Some economists and investment gurus like Jim Rogers, cofounder of the Quantum Fund and creator of the Rogers International Commodities Index (RICI), believe we are entering a long-term boom for commodities and natural resources (and gold). Many world governments see this trend and have been reversing their practice of selling off their Gold reserves. When you combine high demand with lower supplies, this represents a strong argument for any good investment—especially one that has tremendous intrinsic value.

It makes sense to own some gold, but like any investment you don't want to chase returns. Hold at least 10% of your overall portfolio in gold and gold related investments. Those who are more bearish on the U.S. dollar and economy may want to consider 20%.

Here are three ways I recommend to participate in the gold and precious metals market:
-1/3 into physical gold bullion - coins and/or bars – for long-term storage, not for trading.

-Store in a safe place, preferably in a home safe where you have unrestrictive access. For larger amounts of bullion, consider a storage company and ask for receipt of serial numbers for your bars.
-1/3 into gold mining company stocks.

-If you have the time and desire to research and trade individual stocks, consider large companies and junior stocks. If you don't have the time or the desire, use a gold/precious metals mutual fund or an ETF. The Market Vectors Gold Miners ETF symbol: GDX is a good choice here.

-1/3 into ETF that tracks the gold price, symbol GLD This is for short-term, taking profits from time to time, as the price of gold moves higher.

Important note: Have a strategy for purchasing and managing your gold portfolio. Store and preserve your bullion. For your gold mining stocks or funds, and your gold ETFs, consider dollar cost averaging; don't jump in with all your money at once. Gold prices can be volatile, and gold, like any other investment, will undergo price trends. If the price of gold shoots up for a number of days, don't chase it! Most investments that make big moves in a short period will eventually undergo some profit taking; wait for a pull-back in price and then add to your position.

Another good rule to follow: Rebalance your gold-related stocks (only the ETFs and mining stocks) with your overall investment portfolio This means you will take gains from those investments that did well for the year and purchase holdings that have gone down-- bringing it back to the original allocation (sell high, buy low).

Don't forget silver, the other precious metal (also known as the poor man's gold). Silver is one of the world's most used precious metals and is the least mined. It has been moving higher with gold recently, but is still off the multi-year highs set back in March of 2008. It may be the better value play right now in the metals market. Consider silver bullion and the silver ETF symbol: SLV to round out your precious metal holdings. (Courtesy: Greg Womack with Womack Investment Advisers, Inc.& Exper Click-NewsReleaseWire)

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