The Globe and Mail

Gold is hitting new highs and many investors may be looking to add the metal to their portfolio. ETFs make gold easy to buy, but investors should take a different approach with gold than with stocks when considering where it fits in their portfolio.

In the past five years, AppleAAPL-Q is up more than 600 per cent, well ahead of SPDR Gold Shares'GLD-N nearly 200 per cent run. The past five years have seen a string of successful new products from Apple, while inflation and financial crisis have lifted gold.

Apple's success shows that at the end of the day, creative minds are a better bet than the yellow metal. For many blue chip companies, however, the creativity and innovation hasn't been nearly enough. In the past five years, GLD has trounced major blue chip companies such as Wal-Mart WMT-N, Exxon Mobile XOM-N and Procter & Gamble PG-N. Those companies have performed well relative to other stocks as measured by the S&P 500 Index, which was up an annualized 2.6 per cent over the past five years. With reinvested dividends, investors holding these shares have done well and their returns over the past five years are solid, but many investors are looking for more.

If they turned to Google GOOG-Q, which is up more than 100 per cent in the past five years, they'd find that it too has trailed gold by a healthy margin. Google hasn't seen its share price advance nearly as much as Apple's gain, but is most certainly a creative, innovative and financially successful company. Still, it was unable to beat the allure of the "barbarous relic."

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However, it really doesn't make sense to compare individual stocks to gold (unless they're mining it). A more appropriate measure is to compare all stocks to gold. Instead of deciding between Apple and gold, investors should decide between stocks and gold, with stock selection a separate decision.

Reader Forum: Where next for gold?

What do you think of the prospects for gold? Are you betting hard on flight to safety? Or is it the next bubble -- fool's gold, as it were? Share your thoughts with our community of investors.

In 2000, at the height of the technology bubble, the S&P 500 Index traded at a ratio of 5 to 1 versus one ounce of gold. At the other extreme, in 1980, the S&P 500 Index traded for one-sixth of the price of gold. The swings are the result of changes in investor sentiment. In 2000, investors believed in the "new economy," that the business cycle had been tamed and the Internet would unleash rising profit margins for years to come. In 1980, they held the opposite view, wondering if the U.S. would ever exit a stagflation that had plagued the country for years.

The difference between these two periods is stark. In one period, investors are very optimistic and they are focused on what businesses are doing. Investors might compare Coca-Cola KO-N and Pepsi PEP-N based on management, strategy, new products, valuation, etc. In the other period, the difference between Coca-Cola and Pepsi doesn't appear as great. Investors are more focused on geo-political concerns and want to know what the government will do, rather than what a company will do.