Is Gold a Good Hedge?
Many gold buyers want a hedge against the risk of inflation or possible declines in the value of the dollar or other currencies. But gold is an exceptionally poor hedge against both of these risks, particularly compared to the alternatives, such as inflation-protected government bonds and currency futures, that are available to investors.
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CAMBRIDGE – As I walked through the airport in Dubai recently, I was struck by the large number of travelers who were buying gold coins. They were not reacting to Dubai’s financial trouble, but rather were joining the eager rush to own gold before its price rises even further. Such behavior has pushed the price of gold from $400 an ounce in 2005 to more than $1100 an ounce in December 2009.