Gold and oil, long considered the most specialized of vehicles, are capturing the attention of mainstream American investors in 2008.

With gold trading above $900 an ounce, crude oil more than $130 a barrel and nonstop anxieties continuing to encircle our globe, they're becoming more accepted members of the investment club.

"Gold has become more popular as an investment not only because of rising commodities prices, but because it is more available to investors through exchange-traded funds (ETFs), mutual funds and stocks of gold producers," explained Carlos Sanchez, precious metals analyst with CPM Group, New York. "That helps boost prices."

Since gold and oil remain volatile, they should represent no more than a small portion of an individual's long-term portfolio. Prices can still turn on a dime — or a dollar.

"While my expectation is oil prices will remain at elevated levels, the speculation, geopolitical risk and weak U.S. dollar that have been increasing oil prices can reverse at any time," warned Phil Weiss, energy analyst with Argus Research, New York. "We're trading well above actual cost of getting oil out of the ground and we expect prices will move back."

During a dour period for overall financial markets, gold-oriented mutual funds are up 22 percent the past 12 months, for a five-year annualized return of 24 percent, according to Lipper Inc. Natural resources mutual funds that include many oil industry stocks are up 32 percent the past 12 months, for a five-year annualized return of 30 percent.

Inherent uncertainties of gold and oil, coupled with potential for dramatic price rises, attract speculation large and small.

The gold rally began in April 2001 when the metal was $256 an ounce. While investors used to buy gold mostly to escape the dollar, observed Sanchez, a more recent reason has been the worldwide rise in inflation.

"We expect gold's price to go as low as $800 an ounce in July and August as financial activity in the northern hemisphere declines for summer," predicted Sanchez. "We then expect it to rise to $1,000 by year-end before heading higher again next year."

Climbing energy prices, a weak dollar and tensions in the Middle East traditionally boost gold prices, explained Sanchez. With those fundamentals still in place, investors are looking to gold as a safe haven, a hedge against inflation and a portfolio diversifier, he said.

"Gold was just a 'pooh-pooh' investment even six years ago, but the dollar has gone down while an ounce of gold is worth 30 times what it was in 1968," said John Doody, editor of the Gold Stock Analyst investment letter, Fort Lauderdale, Fla. "It's not that gold is intrinsically more valuable, but rather that the dollar has gotten a lot less valuable."

Though some so-called experts are calling for $1,000 to $3,000 an ounce for gold, notes Doody, no one knows for sure. Nonetheless, he envisions no resolution to a weak dollar until our nation's economic problems significantly improve. The current situation helps gold.

SPDR Gold Shares (GLD), an ETF with three-year annualized return of 2726 percent, is recommended by Doody. Over time, he expects it to perform two to three times better than the actual metal price. When prices rise, gold-mining companies whose stocks it owns not only gain in the present, but the value of their metal still in the ground also goes up, Doody explained.

In mutual funds, USAA Precious Metals and Minerals (USAGX), with three-year annualized return of 40 percent, is a top performer that owns gold, platinum and minerals.

Turning to oil, news of supply interruptions in Nigeria and rising tensions between Israel and Iran prompted the most recent price spike.

"I expect oil to average $115 a barrel this year, with a high of $175, then fall to $103 next year," predicted Weiss. "It should gradually move closer to a more reasonable level."

Companies in oil exploration and production have been the best oil-industry performers this year. Also going strong are firms that provide rigs for drilling for oil and natural gas, he said. Oil and gas driller Helmerich & Payne Inc. (HP) and the exploration and production company Anadarko Petroleum Corp. (APC) are his top stock recommendations.

In integrated oil, he likes Marathon Oil Corp. (MRO), ConocoPhillips Co. (COP) and Chevron Corp. (CVX) because they have the most room for price appreciation. In refining, he likes Valero Energy Corp. (VLO), Holly Corp. (HOC) and Frontier Oil Corp. (FTO) for the same reason.

"If you're an investor who thinks you've missed the boat on energy because oil prices have risen so much, the drillers and services have high enough long-term expectations that they're still good places to play," said Stewart Glickman, analyst with Standard & Poor's Corp. in New York.

Among drillers, Glickman recommends Noble Corp. (NE) because of its international focus. He also likes Transocean Inc. (RIG), Pride International Inc. (PDE) and Ensco International Inc. (ESV). In production services for the oil and gas industry to maximize recovery from existing wells, Superior Energy Services Inc. (SPN) is his favorite.

A mutual fund investing in a variety of energy stocks that include oil companies is Jennison Natural Resources Fund "A" (PGNAX), with three-year annualized return of 40 percent. Among ETFs, United States Oil (USO), that tracks oil futures contracts, has a 12-month return of 112 percent.

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, P.O. Box 874702, Tempe, Ariz. 85287-4702, or by e-mail at [email protected]