By Sean Hannon, CFA, CFP, of EPIC Advisors from

Differences of opinion make markets. When I look to buy, someone with the opposite viewpoint must be willing to sell. Knowing this, we often expect diverse opinions to exist about the value of any asset. Nowhere is such disagreement more evident than with respect to gold.

We know the value of an asset should be the sum of its expected future cash flow adjusted by a discount factor that accounts for risks taken. As a commodity, gold does not offer a series of cash flows. Whereas other commodities satisfy set needs -- i.e., oil for fuel, corn for food -- gold has little industrial use and its main benefit is its role as a store of value.

Over centuries, gold has been seen as true money that represents tangible wealth. Having lived through a world of market manipulation, groups of investors long for the time when gold as true money will replace fiat money, which is backed by nothing other than a government's promise to honor the value of the paper currency.

I agree that the current fiat system is flawed and opens itself to disruptive forces. However, I am not convinced gold is much better. What the gold bugs fail to answer is why does gold represent true wealth? Their answer tends to be that it always has. My counter would be that placing faith in gold as true wealth is no different than placing faith in fiat currency as a store of wealth.

If we reach a point of chaos where paper money fails, people will value gold as a means to attain that which is needed to survive -- i.e., food and energy. If you need to invest in a commodity, why not skip this middle step and buy oil and corn as opposed to gold?

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