Historically, gold has been considered a hedge against a loss in the purchasing power of paper currencies. But no one can ever call it a comforting or predictable hedge.

While gold prices ended 2008 just a bit higher than they began it, investors were taken on a thrill ride. After climbing to a record $1,030 an ounce in March, gold began a descent. It has lately been trading at around $850 an ounce.

Despite the swoon of stocks and gold alike last year, in most years gold performs so differently from stocks that a small dose of gold is increasingly being included in mainstream portfolios. Gold generally also moves in the opposite direction of the U.S. dollar.

"I own a small amount—an insurance policy's worth—of gold, some in gold coins, but most in exchange-traded funds," says Dennis Gartman, editor and publisher of The Gartman Letter financial trading commentary, in Suffolk, Va., who believes 5 percent of an individual's portfolio in gold is enough. "I keep the physical gold in a lockbox, just in case, but I hope I lose money on it because that would mean all my other investments are doing better."

Besides gold coins or bullion, the more accessible vehicles for gold investment are mutual funds or exchange-traded funds (ETFs).

The $21 billion-asset SPDR Gold Trust (GLD), an ETF that invests directly in the underlying commodity rather than in gold-mining stocks, issues shares that are each equal in value to one-tenth of an ounce of gold. Launched in 2004, it gained 5 percent last year, 30 percent in 2007, 23 percent in 2006, and 18 percent in 2005.

"With the exception of the 30-year Treasury bond, gold has held up better than other asset classes and has been in a general upward trend since 2001," says Leo Larkin, precious metals and mining analyst with Standard & Poor's Corp., in New York, who considers keeping 5 percent to 15 percent of an individual's portfolio in gold to be reasonable.

"With low short-term interest rates and disappointing equity markets, there's less competition for gold from other financial assets," Larkin says.

A multiyear bull market in gold is still under way and has several years to go, Larkin says. He and Gartman expect gold prices to exceed $1,000 an ounce in 2009, and both recommend the SPDR Gold Trust as a convenient investment vehicle. That ETF can be traded at any time on an exchange and doesn't carry the management or geopolitical risks associated with the stocks of gold-mining companies.

"Even though gold prices were relatively flat last year when you compare the beginning of the year to the end, an investor was better off holding gold than Dow stocks," says Mike Mapa, editor of InsideMetals.com, in Reno, Nev. "By the end of the first quarter of 2009, gold will test $950 an ounce, and I wouldn't be surprised if it reached $1,200 by year-end, which would tell me the economy still has problems."

Major mining companies should do well in 2009 thanks to increased consolidation within the industry, Mapa predicts. The biggest will be able to snap up quality small and midsize mining companies that have been unable to obtain financing.

Jeffrey Christian, managing director of CPM Group in New York, predicts that gold will be around $850 an ounce at the end of 2009, though it will hit a new high along the way. He says the recession should be ending by then, so stocks and bonds will look more attractive, interest rates might start rising, and the case for gold will be less compelling.

"We haven't seen ordinary investors abandon gold by a long shot, because whenever the market is doing poorly, people have a 'deathbed conversion,' and their faith in gold is restored," Christian says.

Individual gold-mining stocks have had a rough time. Mutual funds that invest primarily in those stocks declined 33 percent last year, according to Lipper Inc., though their five-year annualized return is nearly 7 percent.

Among bargain-priced individual stocks, three Canadian companies stand out:

•Barrick Gold Corp. (ABX), the world's largest gold producer, with mines and projects in North America, South America, Africa, and the Pacific region, is recommended by Christian, Gartman, and Mapa. Its geographic diversity alleviates political or production risk from any one region. It also is financially strong with significant cash flow. The stock is down 11 percent this year following a decline of 13 percent in 2008 and a gain of 37 percent in 2007.

•Newmont Mining Corp. (NEM), the world's No. 2 gold producer, is recommended by Gartman and Mapa. It purchased well-known Battle Mountain Gold in 2001 and two additional mining firms in 2002. It has a solid balance sheet and strong cash flow. The stock is down 7 percent this year following last year's 17 percent decline and an 8 percent gain in 2007.

•Yamana Gold Inc. (AUY), founded in 2003, is recommended by Larkin and Mapa, in part because its price is cheap. This producer with seven operating mines and five development projects mostly in South America has aggressively boosted production and acquired the Meridian Gold firm. It is down 7 percent this year after last year's 40 percent drop.