Gold has been much in the news these days. It has reached new price highs in dollar terms, which probably says more about the dollar than it does about gold. But we still see lots of people with a desire to hold gold. Why? First of all, gold is supposedly a store of value. During times of crisis, lots of folks almost automatically turn to gold for a piece of their savings. This has always fascinated and mystified us. (This is the whole tuna fish and shotgun shell argument. For those who have not heard that one, in the worst case scenario, which the gold bugs seemingly always think is right around the corner, gold will be valued no matter what. We argue that canned tuna will probably be more highly valued while shotgun shells, with the appropriate appliance to put them to good use, will be even more highly prized.) This is a kind of self-fulfilling prophesy. If enough people have the same knee-jerk reaction to buy gold, gold will go up regardless of the cause.

Okay, we’ll grant that so long as that knee-jerk reaction is dependable there is no sense in arguing with it. But, is there any real fundamental reason to own gold in portfolios? It is a dandy diversifier, like most commodities. It can work as an inflation hedge, like most commodities. So, why not just buy commodities? Read more