[pedrocr]

I agree that gold should be a commodity. We should stop hiding it away in vaults to never be used. And I know that gold is often grouped with other commodities like oil and other metals. I'm just saying that unlike those, gold's value is determined more by the fact that historically we've perceived it as currency and stored it, than by the fact that it is something that "satisfies a want or need", which is how wikipedia defines a commodity.

>You are in a pretty tiny minority, btw, if you don't believe that using gold as a hedge against currency inflation isn't a useful technique in managing your portfolio.

I'm not arguing about the practical applications of gold in a portfolio. It may very well be a practical way to get an inflation hedge. I just don't think under something like CAPM gold can add diversification when it's value doesn't come from something intrinsic to it like it does with other commodities.

Basically my intuition is that if you buy a perfectly diversified portfolio of assets that adequately represents the whole world economy, then you don't care about the nominal value of the economy, and inflation is not a problem. In that scenario you'd want to have some gold in the portfolio in case someone finds a fantastic new way to turn gold into free energy and it's price sky-rockets on its own merits. But if you're only buying it as an inflation hedge it doesn't really add any value as any inflation would just push the nominal values of all your investments up and leave you owning the same share of the total world economy.

It may very well be that buying a "perfectly diversified portfolio of assets that adequately represents the whole world economy" is not really feasible and gold is a decent approximation. Either way, buying something that by design will be stored in a vault never to be used seems like a random implementation quirk of our economical system that we'll eventually get around to fixing. So in the long run I'd rather be short gold.