Metal mania has gripped some investors amid the ups and downs of the capital markets, spurring everyone from governments to private enterprise to dream up new ways to meet the demand for gold and silver. In some cases, responses have seemed extreme.

The state of Utah in March passed legislation allowing the use of debit cards backed by gold and silver. (No card issuer has seized upon the opportunity.) Donald Trump made headlines in September when he announced that he would begin accepting rental payments in gold bullion from his tenants.

"The economy is bad," Trump told The Wall Street Journal. "If I do this, other people are going to start doing it, and maybe we'll see some changes."

There have also been a few more practical responses to increased demand for bullion. Mass Metal, a three-year-old venture out of Lawrence, Kan., launched a voluntary benefit program over the summer called SilverSaver, through which companies can allow employees to dollar cost average into metals by devoting part of every paycheck to that end. The company is one of many that have been offering direct-to-consumer investment into metals over the web for years.

GOLD AND SILVER FOR ALL

The idea of bringing bullion to the masses this way has some vocal supporters, including those who talk up metals as a hedge against everything from inflation to global economic instability and volatile currencies. "It's wonderful in that it helps the little guy obtain gold and silver on a monthly accumulation program," says vocal silver bull David Morgan, who runs silver-investor.com and writes the Morgan Report. "Your clients can save as little as $100 a month. It's set it and forget it."

But the arguments of gold and silver bugs drive many planners and experts crazy. How, they ask, is gold or silver a true hedge against a volatile dollar when, after all, it is denominated in dollars like everything else?

"Every time we get some external shock to the system, people will run to what they think is safe," says Delia Fernandez, a fee-only financial planner of Los Alamitos, Calif. "How sad that they have to go to a commodity that doesn't behave like an insured product."

Like many advisors, Fernandez prefers to keep her clients invested in some gold and silver via ETFs, held in the insured accounts of banks, brokerage houses and credit unions. Fernandez points out that back in April 2001, gold was worth $256 an ounce. Even from its slightly diminished perch of $1,786 as of Nov. 7, she said, "It could easily fall back further." Gold reached a decade-long high of $1,923 an ounce on Sept. 6.

SKY HIGH, OR SKYDIVE?

Both gold and silver have a history of dizzying volatility. Adjusted for today's dollars, gold reached a high of $2,305 during the last bubble, which ended in January 1980, before crashing back to earth, bringing countless unhappy investors along for the ride.

Furthermore, metals don't throw off dividends like many stocks, and you can't earn rental income from them as you can with real estate. Just the notion of seeing gold and silver morph into an employee benefit makes Fernandez nervous.

"It's like when they started putting tech stocks in the 401(k)s (in the late 1990s) or more recently, REIT funds," she says, "and you thought, 'Uh oh, do they really know how volatile this is?' " 

IGNORING THE VOLATILITY

The recent volatility in metals has not altered the maximum 6% to 8% that Fernandez advises her clients keep in gold and silver. Aside from some routine selling to rebalance portfolios, she is staying the course.

But Charles Lewis Sizemore, a Dallas financial planner and author of the Sizemore Investment Letter, pulled his clients out of gold and silver in 2009 when the price of gold crossed $1,000 an ounce. "Even if you have part of your long-term allocation to metals, there are times when it makes sense to deviate from that," Sizemore says. "It's a high-risk bet at this point."

Sizemore thinks the zeal of the so-called gold bugs is fueled by emotion, saying it can seem like "a cult. Gold is not the one true store of value. The elites in history have measured their wealth in landholding."

The biggest argument against gold, Sizemore adds, is that it is not a productive asset. "It doesn't have a dividend, a board of directors or a game plan. And [gold advocates] are ignoring the fact that there have been massive booms and busts in the metal."

He adds, "They like to make the case that gold has been this ultimate asset that has provided this massive bulwark. And that is simply not true. It's a faulty tenet."

Sizemore thinks that if your clients are bullish on metals, ETFs are the way to go for exposure. "If you're going to do it anyway, do it through an ETF in an IRA," he says. "Then the tax issue become moot." When held outside of a tax-deferred account, gold and silver are taxed at the collectibles tax rate, which is almost twice that of capital gains.

EAGER FOR AN ALTERNATIVE

Nonetheless, there are many planners who see gold and silver as a good place to invest right now. San Francisco-based advisor and mutual fund owner Malcolm Gissen isn't much interested in how people invest in gold and silver, he just thinks they should.

"I'm 70 years old," Gissen says. "I've seen plenty of markets crumble. I'm losing money in my accounts and this is an alternative."

Gissen and his partner Marshall Berol manage about $224 million in assets as financial planners. Separately, they run a tiny $15 million mutual fund, the Encompass Fund, that has taken a wild ride on the metals roller coaster over the past three years.

In 2009, Encompass had an extraordinary 137% return - but that was after being down 62% in 2008. Last year, the fund surged 60%. In both 2009 and 2010, the fund was ranked No. 1 in its category, according to Morningstar. Year-to-date through early November, it was down more than 30%.

Encompass invests in gold and silver by buying stakes in mining concerns around the world. Back in 2002, Gissen and Berol decided both metals were significantly undervalued and began investing in "junior" - or smaller - mining companies, which are being acquired by giants.

SECULAR FACTORS

Gissen thinks market demand is a more compelling reason to buy than the market paranoia of metal bulls. He believes the demand for gold and silver is being driven by many factors, including the rise of the Indian and Chinese middle class, both of which are buying more gold jewelry, and by industrial demand, for silver in particular. Silver is used to make solar panels, water filtration systems, antimicrobial bandages and electrical fixtures, as well as many Apple products.

For these reasons, silver is not just a play for doomsayers, Mass Metal's president, Jeremy Brakenhoff, points out. "I call it the optimist's metal," he says. "If things happen to go swimmingly well, then there will be demand for it on that side as well."

Ann Marsh is West Coast bureau chief of Financial Planning.