Whenever the market gets a little jittery, a whole crowd of paranoid characters crawl out of the woodwork and declare that the fiscal apocalypse is nigh, and the only way to protect yourself is to buy lots and lots of gold.

There’s nothing magical about gold. In truth, gold is like any other commodity. It has a certain intrinsic value based on supply and demand, which is independent of currency values. Thus it is a good hedge against inflation. But then, so are all commodities.

100 years ago, an ounce of gold would buy you one decent quality men’s suit. Now, in 2007, gold is trading for about $675 an ounce. Which will buy you — one decent quality men’s suit. This is a fine testament to the ability of gold to hold its value. However, if you had taken that same ounce of gold and sold it in 1907 for about $21, then invested it in an index fund earning a 10.5% return (the historical average of the S&P 500 index), you would have $455,456 today. Which sounds like the better long-term investment to you?

In the short run, though, things are more complicated. Commodities tend to rise in price as interest rates increase, due to the interest rate component of the futures and options contracts most often used to trade them. Because a common method of combating inflation is to raise interest rates, commodities of all varieties can have periods of superior performance as prices are pushed up both by the inflation itself, and by the interest rate hikes used to combat it. Gold is no exception.

What many people forget is that good businesses, like commodities, have intrinsic value and thus can serve as reasonable inflation hedges themselves (the exception being businesses likely to be hurt by inflation). However, stock prices tend to go down with rate increases, rather than up. If the fed chooses to raise rates, the combination of the herd waking up and saying “uh oh, inflation” with the rate increases themselves could cause gold to outperform stocks for while, at least until current contracts priced for lower rates expire.

I like gold as a short term play right now, but that’s it. Timber is a smarter long-term investment. It has the same inflation-hedging benefits of gold, with the added benefit of income production, and ever-increasing demand from China. Gold doesn’t grow on trees. Timber does.

The doom-and-gloomers can be very convincing. But remember, the four greatest enemies of investors are greed, fear, ignorance, and hope. Which do you think they are catering to?