President Obama's $819 billion bailout package has made it past the House of Representatives and is on its way to seek approval from the Senate. Even if passed in its current form, it will not be an immediate panacea for U.S. economic woes. The safety that investors may seek in Gold ETFs should be taken with the following considerations in mind:

Current Gold Price
Gold futures prices have risen steadily from the $700/oz. range in November to the $905.10/oz. closing price on January 29. As gold prices have climbed upward, gold-tracking ETFs including the iShares Comex Gold (NYSE:IAU), PowerShares DB Gold (NYSE:DGL) and SPDR Gold Shares (NYSE:GLD) have also headed north as a sign of investors fleeing to quality as the economic slowdown continues to plague small and large businesses. Fear in the market is being fueled by the news of massive layoffs coming from multiple industries, touching familiar names including Caterpillar (NYSE:CAT) (20,000 layoffs), Sprint (NYSE:S) (8,000) and Microsoft (Nasdaq:MSFT) (5,000). (Read The Gold Showdown: ETFs Versus Futures to learn how exchange-traded funds offer an entrance into the gold market.)

Record Gold
Keeping in mind gold's record-setting prices recorded during intra-day trading on March 13 last year as one ounce of the yellow metal traded above $1,000/oz., investors should note the contrasts between then and now. During the same time frame as the record gold prices, the U.S. dollar was weak against the Euro and the Yen. U.S. Dollar Index trading was down near its lowest point of the year around 72. Major news stories then were still focused on credit issues and mortgage default-related losses. In contrast, today the U.S. Dollar Index has strengthened above 84, the Obama administration is in office and the debate about the economy has gone from questions about whether we're in a recession to when an actual recovery will take place.

Golden Rule
Buying at low prices is one of the best strategies for long-term investors to generate positive returns. With only $100 standing between gold and a new record price, investors who have not already taken a position in one of the gold ETFs mentioned are better off waiting for gold to retrace its path back below $800, if not lower. To avoid the guessing game, investors can adopt a dollar-cost-averaging strategy into gold once the economy starts to rebound and fear begins to subside. An alternative for investors to consider is the SPDRs S&P 500 Index ETF (AMEX:SPY), which fell nearly 38% in 2008.

Final Thoughts
Gold can act as a safety net in any portfolio, but investors should devise an entry strategy focused on minimizing their exposure to high gold prices driven by investor fear.

For more on gold ETFs, be sure to check out the answer to our frequently asked question: How do I go about investing in gold?

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Tickers in this Article: IAU, GLD, DGL, CAT, S, MSFT, SPY

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