(Dow Jones) When it comes to gold, financial advisors are finding themselves in an all-too-familiar role: that of mom and dad slapping hands away from the cookie jar.
The precious metal has enjoyed a big run up, gaining about 25% in the past year. Such price spikes often create a ticklish situation for advisors: They think about selling just as clients want to buy.
"I am not a gold bug, but I have a couple of clients that have just insisted," says Jim Heitman, a financial planner in Alta Loma, Calif. "Even as they objectively recognize the threat of a bubble they just don't seem to care."
Heitman says he sometimes uses commodity-sensitive stock funds such as PowerShares Dynamic Basic Materials Sector ETF (PYZ) but doesn't like making direct bets on a single commodity like gold. To clients that walk in the door craving gold, he makes two arguments: In the long-term, gold prices merely keep pace with inflation, and investors should concentrate instead on their broader goals like what kind of income they'd like to generate.
For those that won't be swayed, he points toward SPDR Gold Trust (GLD), but he keeps the exchange-traded fund at no more than 5% of their overall portfolios.
Trying to talk clients out of hot investments is nothing new for financial advisors. In some ways, advisors say, the gold boom is easier to deal with than past spikes like the Internet stock bubble in the late 1990s, an event that still looms large in many imaginations.
The Internet bubble proved to be the cap on a 20-year bull market that had many investors feeling invincible. After the market crash that rocked Wall Street in 2008, no one is feeling that way.
Vancouver, Wash.-financial advisor George Middleton says the current fascination with gold began in 2009, spurred in part by desire for a safe harbor. As the price of gold has climbed steadily, investors have remained interested, if not always for the same reasons. While many of his clients own iShares Gold Trust (IAU), he's been selling small lots to keep the metal from becoming too big a part of their portfolios.
Clients "check to make sure they own it, then they ask should I buy more?" says Middleton. "The answer is usually, 'No.'"
Financial advisor Bob Kargenian, in Orange, Calif., has gone a step further and begun to sell. For instance, for his moderately aggressive clients, he's cut exposure to Van Eck International Investors Gold Fund, a mutual fund that focuses on gold miners, to about 1.8% of investment portfolios from about 3.5% at the end of September.