As uncertainty afflicts Wall Street and world currency markets, investing in precious metals may seem like a life preserver.

Things are not that simple. A precious-metals investor is betting on inflation. And the recent drop in oil prices, among other factors, has again slowed down inflation worries. This has caused rapid up-and-down volatility in precious metals, especially gold, which briefly touched the $500 an ounce level recently before pulling back.

«The expected inflation rate is the most dominant factor in determining prices of gold,« said Gunter Dufey, professor of international business and finance at the University of Michigan.

A long-range view of the economic turmoil might give precious metals more appeal, because governments are churning out money to keep markets «liquid« in the wake of the stock pullback. That could ignite inflation up the road.

«What causes inflation?« asked Dufey. «War, insurrection, woolly times-all of those things will increase the price of gold because in times of political instability, governments like to print money.«

For those who see such a scenario, gold or other metals may be the answer.

«As an inflation hedge, gold is the safest place to be,« said Eric Maine, a precious-metals trader for Prudential-Bache Securities Inc. in New York.

Before investors run out seeking the Midas touch for their portfolios, though, it is important to consider the disadvantages of precious metals.

For one thing, prices have been volatile.

«Gold prices move around a lot in ways that aren`t always predictable,« said Miles Kimball, professor of economics at the University of Michigan.

«Many things can cause fluctuations.«

Chief among those, he said, are interest rates. When they rise, they push down precious-metals prices, because holding them pays no interest. Investors tend to dump gold, silver or platinum, putting the money into bonds or bank certificates of deposit to take advantage of high yields.

Silver and platinum don`t move around in price as much as gold, because they have limited industrial uses. But holding them is fraught with risk.

A general rule for those who want to invest in precious metals is to limit them to 15 percent of your portfolio, according to investment advisers. «Gold is a personal, quiet way of investing. You`re actually buying gold to horde it in case of an emergency,« said Luis Vigdor, senior vice president of Manfra Tordella & Brookes, a New York coin dealer.

Methods for investing in metals include:

- Bullion. Conservative investors who plan to hold on to their metals for a long time should consider owning the metal. However, there is sometimes as much as a 15 percent premium for manufacturing costs, and safe storage can prove costly. Many buyers put their metals in a safe deposit box, guaranteeing personal access. One drawback to owning bullion is that, if you decide to sell, an assay of about $25 a bar is often necessary.

- Gold certificates. These don`t cost an investor storage or assay fees, but the investor is trusting someone else to hold the metal. Question: If an emergency strikes, would the investor be able to obtain it? Some investment deals featuring fancy certificates have left buyers holding the bag.

- Coins. An easier way to obtain and hold precious metals, gold coins typically sell for 2 to 8 percent above their face value. The American Eagle, which soared in value when it first came out more than a year ago, has stabilized at about 4 percent above face value, said Vigdor. He said the new British Britannia, Canadian Maple Leaf and Australian Nugget sell for a similar premium, and the Chinese Panda sells for somewhat more because of limited availability and design changes. South African Krugerrands sell for the smallest premium because demand has fallen sharply under political pressures.

- Old coins. So-called collectibles, their price rises and falls based on more than metal content. They sometimes become difficult to sell. The condition of each coin greatly affects value, and this investment is only for those willing to become knowledgeable.

- Mining stocks. These, as well as mutual funds geared to mining stocks, boomed earlier this year, but fell victim to the stock market crash. As investments, these are risky, and some observers say that, even after their recent setback, such stocks and mutual funds remain overvalued.

- Futures. This is an area that`s too dangerous for the typical investor. Most people who buy futures contracts on precious metals hold them for the short-term, hoping to reap a quick, perhaps sizable, profit, and get out.

When considering a precious-metals investment, keep in mind that constant homework is necessary. Watch prices, for cash metals or metals futures contracts, in the newspapers every day.

Financial advisers say you should never lose sight of the goal of a precious-metals investment: to beat inflation. Without inflation, you`ll almost certainly do better elsewhere.