The value of gold has taken a tremendous hit over the past few months and has had an extremely tumultuous 2013. This precious metal, touted as a hedge against market instability, has proven extremely volatile since 2011. Yet, gold remains at the forefront of news with many critics and supporters. Given the mixed signals investors receive from analysts, what are we to conclude about the value of gold? How are we to determine its worth? We can’t. The premise for the valuation of gold is completely speculative; the value of gold is left to our interpretation of catastrophic events and their outcomes. So then, why is gold trading close to $1,250 an ounce? The answer in part is the result of investor naivety and hedge fund manipulation.

Leading up to the 2008 financial crisis gold was gaining value and trading in the $800-$1,000 range. Post crisis, gold took a slight dip but emerged and eventually peaked at $1,900 an ounce in mid-2011. Since then gold has seen its value dramatically reduced to $1,240/oz. with analysts predicting it may drop to $900/oz. Still gold holds tremendous value, but why? Sure it’s used in many consumer and luxury goods, but does that justify a $1,240 price point? I argue such a valuation is completely irrational. Gold’s value is solely based on the stability of financial markets, nothing else; it’s a hedge against instability, or so we’re told. When inflation and interest rates increase, typical indicators of present and future economic hardships, gold’s value rightly increases as well. When global economies show signs of improvement and growth, gold’s value decreases; yes, it’s that simple. The trick is predicting the future of economic growth, specifically that of the United States, which is currently impossible. However, it does appear that America is finally emerging from its recession, partly signaled by the Fed’s recent tapering efforts. This perception indicates stability, hence the drastic drop in gold prices over recent months.

When entities such as the World Bank, International Monetary Fund, and U.S. Department of Commerce issue positive economic guidance, the fear that developed markets will implode dissipates. The result is decreased gold prices. So, is gold a wise investment? No, as I mentioned earlier, gold’s value is based off hypothetical constructs with the belief that it will maintain its value during times of economic chaos. News flash, the last thing people will want during catastrophic times is gold. If the United States truly does sink back into a depression, do you think people will be lining the streets trading their goods for gold? No, they’ll be bartering basics such as food, water, weapons, and medicine. The goal will be to survive, not to maintain an illusion of wealth. Sure, this is an extreme situation but it represents the repercussions of a modern day economic disaster. If the aforementioned occurs gold will be no more valuable than gravel; I can’t ingest gold to survive, thus its worthless in my eyes.

Obviously such a situation hasn’t occurred, yet. But I’m sure you’ve heard the advertisements on Fox News about how the world is on the brink of economic collapse, inflation is out of control, America’s debt is unsustainable, and that gold’s price has never been zero. This may appeal to some uniformed elderly couples that seek “stability” for their retirement portfolios, but what they fail to notice is that gold’s value is based on uncertainty. Although markets experience systematic highs and lows, with periods of variability, they’ve historically recovered and grown. The fact of the matter is that gold is a precious metal, nothing more. Presently, many industries demand gold for their products and many individuals purchase it out of fear. But at the end of the day gold is simply an element with a volatile demand that is propped up by hedge funds. When you purchase gold you are buying a tangible asset; when you purchase stock, you are buying ownership in a company. Google (GOOG) and Apple (APPL), given their worldly presence and our reliance on their technology, will be around for decades to come. Gold, however, may loose its value tomorrow. So, before hedging against uncertainty ask yourself this, “is it more likely that Google or gold will collapse overnight, and if they do which will pose greater difficulties to our universal infrastructure?” Can humans thrive without gold? Yes. But can humans thrive without technology? No!