NEW YORK (Fortune) -- Signs of gold fever are everywhere. TV commercials scream, "Sell your baubles, prices are reaching the sky!" Investors have poured more than $12 billion this year into SPDR Gold Trust (GLD), the big exchange-traded fund.

Top-ranked manager John Hathaway of the Tocqueville Gold Fund (TGLDX) offers this astounding prediction: The price of the precious metal could rise to more than $5,000 an ounce.

And if that's not enough to convince you, gold futures for December delivery rose $27 to an intraday record high of $1,045 an ounce in New York trading Tuesday.

But amid the buying frenzy and after a decade-long run-up that has seen the price quadruple, is gold still a smart investment? The simple answer: Wherever the price of gold is headed in the long term, several market watchers say the fundamentals indicate that gold is poised to fall.

And even if you fret that the government's pullout- all-stops effort to rescue the financial system and revive the economy will lead to inflation, there are better hedges than the yellow metal.

Gold has moved in huge swings since the economy started to crack in 2007. The price closed above $1,000 for the first time on March 14, 2008, just before Bear Stearns was sold to J.P. Morgan (JPM, Fortune 500), then fell to near $700 last November before rising again past $1,000 last month.

Bulls argue that gold still has more to gain: As the national debt balloons, the result is bound to be a weaker dollar and higher inflation -- both traditionally bullish for gold. Jim Rogers, the investor who predicted the commodities boom earlier this decade, expects gold to pass its inflation-adjusted 1980 peak of $2,312.

"Gold is going to be much higher over the course of the bull market, in a decade or however long it lasts," he says. Rogers, who in the past has criticized the Federal Reserve for being lax on inflation, considers gold the ultimate safe haven in times of financial stress. But he thinks other commodities trading far from their all-time highs -- cotton and lead, for example -- might offer better returns, along with inflation protection.

Hathaway, who manages $1 billion at the Tocqueville fund, sees gold soaring for several reasons, including rising inflation and the rather curious fact that in two previous instances the price of an ounce of gold and the level of the Dow Jones industrial average have come close to converging.

In 1933, when gold traded at $32 an ounce, the Dow bottomed out at 50 in February. In 1980 gold climbed to its high of $850 on Jan. 21, when the Dow closed at 873. Today Tocqueville sees something similar happening, with gold rocketing to $5,000 or $10,000 an ounce (the Dow is now at about 9700).

Those projections are tantalizing. But when you look at supply and demand, gold loses some of its luster. Gold miners have poured more than $40 billion into new projects since the bull market began in 2001, according to Montreal-based bullion dealer Kitco. Like Big Oil explorations started earlier this decade amid rising energy prices, new gold projects are now bearing fruit.

Mining output was up 7% in the first six months of 2009, after several years of declines, as China, Russia, and Indonesia have ramped up production. Kitco predicts that new mining will add 450 tons annually, or 5%, to the gold supply through 2014, enough to move prices lower.

On top of that, $1,000 gold brings out gold scrap sellers. In the first half of 2009 alone, high prices attracted 900 tons of gold jewelry, old coins, and other scrap. Industrial and jewelry demand, meanwhile, has fallen 20% in the past year, according to GFMS, a precious-metals research group.

Kitco analyst Jon Nadler says gold is setting record prices amid "some of the poorest fundamentals I've seen in the market for a long time." He suspects the recent rise has been driven by large hedge funds and institutional investors making momentum-driven trades. As for fears of financial collapse, "The sky did actually fall last year -- and it was good for $1,035 gold," says Nadler. "But that's about where the worst ends."

So the short-term outlook is not promising. But what about long-term protection against inflation?

Money manager Rob Arnott, chairman of Research Affiliates, whose strategies are used to manage $43 billion in assets, believes the inflation rate could climb above 5% in two to three years and that investors should dedicate a quarter to a third of a portfolio to inflation protection.

But he's not a fan of gold, which, he says, basically tracks inflation over the long term, leaving you a loser after taxes. "Gold is not a sensible core holding," he says.

Like Rogers, Arnott thinks common commodities are a smarter choice. He suggests iShares GSCI (GSG), an ETF that tracks the broad S&P commodities index. Arnott also likes using Treasury Inflation- Protected Securities, real estate investment trusts (REITs), and emerging-market bonds, which you can buy through the PowerShares Emerging Market Sovereign Debt ETF (PCY). Many developing countries are commodities producers, so if U.S. inflation kicks in, their currencies will gain strength and their debt will rise in value.