Gold glows.

While most people were losing money last year, those who invested in precious metals funds were having a year like the golden days of dot-com. According to Morningstar, the average precious metals mutual fund is up 65.23 percent in the last 12 months and 48.51 percent year to date. The top-performing fund, American Century Global Gold, has jumped over 100 percent in a year.

The question: Is this is just another flash in the pan?   Or is it the beginning of something?

The record isn't encouraging. Over the last 15 years precious metals funds have averaged a 2.02 percent loss per year while the S&P 500 index was rising 16.34 percent a year. Put that on your calculator and $10,000 invested in gold was transmuted into $7,360 over fifteen years while $10,000 in equities rose to $96,800. Over the last 10 years precious metals funds lost value in 6 years and only did really well in one year. That was 1993 when they popped up 80.97 percent. This, by the way, is the track record of the funds that survived. Many didn't, eaten alive by falling assets and rising expense ratios.

In fact, gold is more interesting today than it has been at any time since the late seventies, when it was allowed to trade freely again in the United States. Back then (1977 to be precise) it started at $75. The Gold Bug crew made a strong case that it was worth $300 an ounce. Instead, the metal blasted through $300 and peaked at $800, when it made the cover of Money magazine.

Back then, the fear behind the rise was galloping inflation, the prospect of Saudi Arabia buying everything on the New York Stock Exchange (no kidding, someone calculated how long it would take), and worries there would be no recycling of the billions of "petrodollars" we exported in exchange for OPEC oil.

Today, the fears are different, but related. Here are the pillars that support the case for gold:

•           Gold production is sagging while demand is rising.

•           Central banks have sold about as much gold as they dare sell.

•           A rising supply of dollars in foreign hands.

•           A trade deficit that won't go away.

•           The dollar is overvalued.

•           Gold is the alternative to the dollar: the EU and the Yen don't qualify.

•           Low real rates of interest.

•           Global financial weakness and worry.

While gold has traditionally be a haven in times of angst, we've been through all kinds miserable events in the last twenty years and gold has neither spiked nor soared.

Until recently.

Now, gold is over $300 and people are buying once again. Japanese families are buying. The Chinese government is buying. And you can bet it is still being accumulated in the Middle East.  

Put it all together and a good case can be made for $500 an ounce gold, with plenty of room for a major anxiety spike. My favorite rule of thumb is called the good man's suit rule--- an ounce of gold should be enough to buy a good man's suit. By that measure gold should be selling at more than $600. It could easily be twice that, without considering Oxxford or Brioni.

What do we do?

Not much. At its best, gold is insurance against a nasty world. That means not more than 5 percent of your financial assets. American Century Global Gold (ticker ACGGX, minimum investment $2,500, expense ratio 0.92 percent, no load), mentioned earlier, is one of the three largest precious metals funds.   The largest is Fidelity Select Gold (ticker FSAGX, minimum investment $2,500, expense ratio 1.43 percent, load 3 percent), followed by Vanguard Precious Metals (ticker VGPMX, minimum investment $3,000, expense ratio 0.65 percent, no-load). A small, relatively new gold fund that has been a top performer is Tocqueville Gold (ticker TGLDX, minimum investment $1,000, expense ratio 1.95 percent, no-load).   Tocqueville Gold and American Century Global Gold both have 5 star ratings from Morningstar.