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by Ron Marshak - AllPennyStocks.com Senior Staff ReporterIf you believe in the investment principle of diversification, then adding gold to your portfolio just makes sense. Of course there are other ways to hedge, such as gold stocks like these.

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It seems like every week Wall Street comes up with some new, exotic investment idea that puts your money at risk. Thankfully, traded funds (ETFs) are less volatile than individual stocks, cheaper than most mutual funds, and subject to minimal taxation. But how do you use this wonderful product to diversify your investments in today’ changing market

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Stock Market Game January 5, 2004 (Allpennystocks.com) Talk to a true 'gold-bug' and they'll claim you should always have gold in your portfolio. For them, financial disaster is always around the corner and gold is the ultimate hedge against disaster. Well, these days you don't have to be a gold bug to have gold in your portfolio. If you believe in the investment principle of diversification, then adding gold to your portfolio just makes sense.A diversified portfolio has a mix of stocks, bonds and cash. How much of each depends on your goals and risk tolerance. Most experts believe in diversification because when you hold two or more investments that react differently to the same event, you can reduce risk and improve performance at the same time.

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Stock Investing Game Gold reacts differently to events than stocks and bonds. When the price of stocks and bonds fall, gold usually goes up. And right now we're looking at a slew of potential 'events' that could cause the price of stocks and bonds to nosedive. We've got a stock market riddled with absurd p/e ratios, a record budget deficit, a record level of consumer debt and a record trade imbalance.

fund manager and longtime Wall Street commentator Jim Cramer explains how to invest wisely in chaotic times, - or should be, when it's done right.

Journal Prime Rate Street Wall There's lots more - like terrorism, Iraq, scandals, etc. - but the trade deficit alone is sufficient reason to turn to gold. Just ask Warren Buffet. In Fortune, November 10, 2003 he writes that in response to an "alarming" situation, for the first time ever, his company, Berkshire, has " . . . made significant investments in - and holds - several currencies."Well folks, when Warren Buffet finally believes it's time to seek protection against a declining dollar, how can you not listen? And just take a look back. When the value of the dollar goes down, the price of gold just about always goes up. So the question is not should you invest in gold but rather what's the best way.Of course there are other ways to hedge. One interesting play for aggressive investors is Shore Gold (TSX-V: SGF.V, OTCBB: SHGDF) a junior diamond exploration company with good management, experience in mining in Saskatchewan and moderate share dilution. Last May it broke out of a year's trading range around 75 cents and by October had climbed to around $1.80 where it stalled. It just broke up again to touch 1.94. The resistance at 1.80 is now support, so technically, the stock looks pretty good. Do your own DD of course.

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Stock Market News If you're more conservative and want to go with gold, one widely recommended blue chip gold stock is Barrick (TSX: ABX.T, NYSE: ABX). Out of 27 analysyts listed at CBS Marketwatch, 8 rate it a strong buy and 5 a buy at current levels. It's a major producer (it even pays a small dividend) so it's price will largely depend on the price of gold. A good one to hold for the long bull market in gold ahead.

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