Chris B

Gold - Not the Safe Haven People Think it Is

When you buy or short gold, you are purchasing a hedge on future inflation rates, nothing more. If inflation expectations rise, gold rises. If inflation expectations fall, gold falls.

When you purchase physical gold, you pay enormous transaction and storage costs and risk loss or theft, but get the additional benefit of "anarchy protection" in the rare event that all counterparties and the currency fail. The values that the market assigns to these attributes changes on a minute-to-minute basis, which is why the price of gold is so volatile.

To be clear, gold's value, just like a currency's value, is purely psychological. There are lots of elements and compounds on the planet that are more rare or costly to produce that people do not assign the value they assign to gold. Gold's value as an inflation hedge or as anarchy insurance is based on the premise that its psychological value will endure. That may be a solid assumption, but be aware of it. Canned goods, water filtration devices, medicine, pesticides, fuel, or ammo might increase in value faster if things got truly desperate.