They weren't a good hedge recently, clearly. Very few things are in this kind of environment. You have cash, Treasuries and gold, and that's about it.

HAI: How do you use commodities in client portfolios?

Steinhilber: I've gotten it down to three positions: DJP (the iPath Dow Jones AIG ETN (NYSE Arca: DJP)), DBC (the PowerShares DB Commodity Index Fund (NYSE Arca: DBC)) and GLD (the SPDR Gold Shares {NYSE Arca: GLD}).

Every account has a position in GLD, and some accounts will have DJP by itself or a combo of DJP and DBC. It's hard to decide which of those two products I prefer, because there are certain things that are attractive about DBC. I think their optimized roll yield mechanism - even though it doesn't produce a lot of incremental return - does have a history of returning 100 bps versus a plain front-month roll strategy. On the other hand, DBC is highly weighted to Energy, and it's nice to have more commodities than are included in DBC's focused portfolio. DJP has things like natural gas, sugar, etc.

Both DBC and DJP meet standards in terms of the overall assets and spreads; you can get in and out of those products for less than 10 bps. So both work in the portfolios.

HAI: What kind of weights do you use? How much of each should the average investor hold?

Steinhilber: In a typical account, I will invest about 8% of the portfolio in those three ETFs. That's up from probably around 5% because the extreme weakness in commodity prices has allowed me to move back to a more neutral allocation in a growth-oriented account. In a conservative account, I would pull back on this.

I had recently been in the 5% range in those three funds together, but I bumped that to 8% recently. It's worth noting that I pulled that extra 3% from cash - I had cash reserves, thankfully. That's not a reduction in my equity exposure.

HAI: So you think commodities are attractive here?

Steinhilber: They're really cheap. They look very cheap. Even thought the economy is creating a headwind for commodities, you have big tailwinds from the government spending and other factors. There is the infrastructure spending, and people still need to eat. Add in questions about the dollar and that is bullish for commodities.

HAI: That covers DBC and DJP. But what role does gold have in a portfolio?

Steinhilber: That's kind of an insurance policy. Gold is an unusual asset in that its pure economic utility value is significantly less than its price, because it retains a monetary role.

I hope this doesn't happen, but there is a scenario ... and there are plenty of smart people who point to this risk - George Soros, for instance ... where the U.S. dollar doesn't remain the reserve currency in the world. It's also not out of the realm of possibility that there could be a greater global monetary disruption than we've already seen.

I think you need to have some exposure to gold as an insurance policy.

HAI: And what if that scenario doesn't play out?

Steinhilber: Well, I think gold is fairly valued in the status quo. People say you can't value gold, but there are long-term studies that compare the price of gold to the monetary supply over the long term.

Using those, we're in the realm of fair value. Could gold go down to $600/ounce if there's a big dollar rally? Sure. Could it go to $1,000/ounce? I wouldn't be surprised at all.

I don't think there's any more downside in gold than in the market in general, and it's sure nice to have that insurance. I'd also add: With the Fed making it so that there is no yield on cash, the opportunity cost of holding gold right now is negligible. So why not?