Gold: Don't count on $1,000

Gold, which typically rises during times of economic uncertainty and inflation, hit an all-time high of more than $1,030 an ounce back in mid-March.

The price started to slip soon after that as credit crunch fears subsided. But it has been back on the rise this week partly due to the dollar's weakness and stubbornly high oil prices.

A week ago, gold futures were trading at $866 an ounce. Today, they hit nearly $909 in mid-morning trading. That's a 5% jump in just a couple of days.

So will gold prices keep rising? And what should investors do about it?

There is a case to be made for gold prices continuing to rise modestly. Demand for gold is still strong in many emerging markets. As such, profits for many gold miners are expected to double this year.

Still, most financial planners and market strategists say that people should only have a very small percentage of their portfolio dedicated to gold. It is after all, in incredibly volatile investment. And betting on gold often means that you're taking a leap of faith about currency and interest rate fluctuations as opposed to looking at fundamentals like sales and earnings growth.

But based on how well the gold market is doing this year, it's not a bad idea to have some exposure to gold given how it is typically a hedge against inflation.

Gold prices are up nearly 9% year-to-date. Not surprisingly then, gold stocks, mutual funds and ETFs have been some of the market's better performers during this tumultuous year on Wall Street.

According to fund tracker Morningstar, precious metals funds are up 1% year-to-date compared to a 8.5% loss for the S&P 500. And top mining stocks such as Goldcorp (GG), Agnico-Eagle Mines (AEM) and Yamana Gold (AUY) have each gained more than 10% in 2008.

Nonetheless, investors probably shouldn't expect a return to $1000 in the near future.

Keep in mind, when gold hit its all-time high, the overall market was in a panic about whether Bear Stearns would collapse.

Barring another major scare to the market like that, it's hard to imagine that gold will shoot up to a new record, especially if the Fed does actually raise rates later this year, a move that could help strengthen the dollar and lead to a pullback in commodity prices.

So even though investing in gold and gold mining stocks may be a good idea for a long-term portfolio, now's the time to not go overboard and make too a big bet on all that glitters.