I've always thought gold was a fool's investment--good for little else besides jewelry--but when three of the smartest advisors I know have 10% of clients' assets invested in the precious metal, it's time to reconsider. Those advisors happen to be Bill Bengen, Mike Martin and Tom Connelly.

Both Bengen and Connelly have been allocating 10% of client assets to gold, and a few weeks ago Martin told me he was in the process of moving many clients' allocation from 7% to 10%. Bengen told me yesterday that if gold corrects, which he suspects is quite possible after the recent run up, he'd increase his position.

It's easy to see why these advisors are wary of more traditional investments like equities. A few weeks ago, stocks enjoyed a 5% rally over little more than a week. The reason: The European Central Bank came up with a plan to loan more money to Greece to help that beleaguered nation pay off other loans they can't afford to pay down. If that makes sense to you, there is a bridge you can buy.

Last week, the market seemed to regain some of its senses and correct itself, but the developed world appears to be headed on path that is unsustainable. The European debt crisis, in particular, looks to be destined for an unhappy ending, while the problems in America represent a dysfunctional political system as much as they do unsolvable structural imbalances.

For his part, Bengen cites two other world-class investors who are ultra cautious: George Soros and Ray Dalio. A recent report says Soros currently is investing 75% of his hedge fund's assets in cash. Bridgewater Associates' Dalio, operator of the world's largest hedge fund, tells The New Yorker that ultimately America will turn to the printing press to solve the debt problem. "There hasn't been a case in history where they haven't eventually printed money and devalued their currency," he is quoted as saying.

For Europe, Dalio's outlook is even worse, since European countries don't have the option of printing money, having ceded that power to the ECB. So Europe is simply "destined" for a "classic depression," according to Dalio.

On that upbeat note, I'd like to pose the following question: What makes anyone think that gold will do so well under these doomsday scenarios? It certainly didn't perform very well during the 2008-2009 financial crisis, but what do I know?

Connelly's and Martin's clients hold greater exposure to equities-somewhere in the 15% to 60% area, depending on the client-than Bengen's, who are about 10% in stocks. Bengen acknowledges he can find some blue-chip names like Johnson & Johnson and Procter & Gamble and put together a portfolio yielding almost 4%. But if the market drops 30%, an outcome to which he assigns a high probability, it will take even the best shares with them, although they might fall only 25%. That's why he is keeping his powder dry.