Ask around and you'll find lots of agreement that the Dollar has to collapse, and that gold (GLD) will eventually be worth a lot more as people revert to a traditional store of value.

But in the meantime, for all its shiny yellowness, its performance isn't all that impressive. It was down once again today, and is now 13% off its recent highs.

But one day, surely gold will reign supreme, right?

David Goldman thinks not, and argues that it neither serves as an effective inflation hedge nor as a political hedge:

Inflation adjusted, gold still trades around half its 1979 peak. The 1979 peak was registered, of course, over Christmas of that year, as the Soviet Union marched into Afghanistan, and therein lies a story. There are lots of ways to hedge against inflation without taking the time and trouble to buy physical gold, which has a number of deficiencies as an asset (it costs money to store rather than paying interest, it is subject to odd supply and demand shocks such as central bank sales). But there is no way to hedge against a collapse of a superpower such as the United States. In 1979 most of the world had taken the measure of then President Jimmy Carter and concluded that Russia would win the Cold War. When Russia marched into Afghanistan, it capped an aggressive campaign by the Soviet Union to assert its influence. Just as important if less dramatic was the so-called Ostpolitik of Germany’s Social-Democratic government and the construction of a Russian natural gas pipeline to Western Europe.

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Everyone should have a bit of gold in his or her portfolio — I own a smidgen of a gold-tracking stock — but there is no reason to dive into the metal. As long as the world wants to be cash rich, dollar cash will have a bid.

What about inflation hedging? Gold and CPI don’t track particularly well, as the graph below of 12-month change in CPI and gold respectively makes clear:

Statistical analysis shows that CPI changes predict changes in the gold price, not vice versa. In other words, you are just as well off using TIPS.

In some respects, gold is the financial equivalent of Pascal's Wager. Pascal argued that it made mathematical sense to believe in god, because even if there's just the slight chance that believing in god will get you into the heaven it's worth it, since heaven since would be infinitely better than hell. The problem with this logic is that there are lots of ways to apply this logic. Which god do you believe in? What if they path to heaven is believing in trees, rather than deities?

Gold may be the same. It seems like a good thing to to assure that you will prosper in the post-apocalyptic Mad Max world that could one day ensue. But who knows? What if people just want to trade cigarrettes? Should you keep some of your portfolio in that, too?