Gold called impractical for hedging

Dear A.M. Costa Rica:

You recently printed a letter from a reader who advocates hedging one’s financial bets by hoarding gold. Others advocate a mixture of precious metals including silver, platinum and maybe more. It’s an interesting position to take at a time when gold is trading at a multi-year low and on a downward price trend.

Beyond that, I’m always struck by the matter of practical application. Gold, like other forms of wealth, only has value (beyond its limited application in some high-tech devices and jewelry) because someone else agrees that it does.(It has that in common with money.) You can’t eat gold. You can’t burn it for heat. You can’t wear it. So just what good is it?

Well, the hoarder’s assumption is that it can be traded for something of more practical value, but just how might that work in real life? And just how many of us will, when faced with the collapse of the world economy, run out to buy a new laptop and another gold chain?

Imagine taking your ingot down to the local gram scale-equipped pulperia to exchange it for a bag of rice and some dried beans. First, you must (somehow) convince the owner that your ingot is really gold. Then, you and the owner must (somehow) agree on how much gold his rice and beans are worth, and you scrape off enough to satisfy his demands. This all presumes that you and he have (somehow) determined that his gram scale is accurate. Now imagine the same process at your local Wal-mart or PriceSmart. How, just how, will this work?

I’m a firm believer in diversifying one’s assets, but basing one’s financial future on precious metals seems unlikely to afford much real protection.

David C. Murray

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