All You Need to Know About Gold

And that, essentially, is the argument for owning some form of gold in your investment portfolio.

Gold is not meant to be your entire investment strategy. Instead, it is designed to protect against extremes of both credit creation (inflation) and also against deflation. When asset values are falling in a deflationary period, gold bullion or coins are easily valued, and exchanged, in a global market.

Despite its history of preserving value, gold is not always priced rationally in global markets. In November, gold traded down to $725 per ounce, as hedge funds and other large investors seeking liquidity sold their gold-mining stocks and bullion, taking their profits in the one sector that had not been decimated. So gold prices are also subject to market forces.

Those who think they can preserve their wealth in gold against all economic disasters, should realize that in extreme times few would accept a gold coin in trade for the last loaf of bread. In short, if you invest in gold, you're hoping that this "insurance policy" will never really need to be used.

There is one "doomsday scenario" that encourages investors to buy gold today for future profits. Clearly, the U.S. dollar remains the currency of choice today, in spite of all the debt being created. That's partially because other global currencies are even less reliable. And the global gold market is not large enough to accommodate a rush from all dollar-holders around the world.

But if the dollar does come under attack, with foreign holders unwilling to lend us money or keep their assets in dollars, the United States could be forced to once again link the dollar to gold. Only this time, at much higher prices than the current $42.22 official price. Some are predicting a conversion price as high as $4,000 an ounce one day.