KEY POINTS:
I have never believed gold is an investment. My definition of an investment is it must generate income - shares in companies generate profits and dividends, property gives rental income and deposits give interest.
Gold does not give income - the only way people can profit is to buy it speculating on an increase in value.
Nevertheless, gold does have its uses. Firstly, it can work as a reasonably good hedge against inflation. Gold is supposed to have "real" value which holds its spending power even when paper money does not.
While gold has sometimes hedged inflation well, it is not a panacea against inflation - at times inflation has been high but gold has fallen in value.
Secondly, gold acts as a "crisis hedge" - in times of political or economic turmoil people hold gold. The idea it has value is nothing more than a long-standing convention and only followed in some societies.
Historically, gold has always had value and when, as now, people do not trust a promise written on a piece of paper, or when there are wars and major dislocations, people can carry their wealth with them in the form of gold, reasonably confident it will have a value.
In the last three years, the gold price has doubled - from US$450 ($748) to US$900 ($1496) per ounce at present.
Among the main reasons for the significant increase has been the number of people troubled by the very high indebtedness of much of the western world and worried about the effects of runaway inflation.
In recent years plenty of people, frightened by the loose credit that has been prevalent, have sought refuge in gold.
The future price of gold will probably follow the ongoing credit crisis - each piece of bad news will see further rises in the value of gold.
Many high net worth individuals have perhaps 5 per cent of their portfolios in gold. These people are not so much speculators, but will hold some gold forever - they will ensure they survive no matter the extent of any meltdown.
It is for this second reason I own a bit of gold.
I favour having it stored somewhere safe, such as in a safe deposit box at your bank.
You can never be sure what economic or political disasters might eventuate in the future.
Owning gold in the form of coins or ingots is different to owning gold "futures" or gold mining companies.
Futures are effectively a promise from someone else that may not be fulfilled, and owning gold mining companies means selecting one with good management, plenty of proven reserves and in a country which is politically stable.
Gold can be bought at the Auckland-based New Zealand Mint, which can also store it.
