Hedging As Happy Medium

The first question Scott Burns fielded in his latest column was about buying gold coins. His answer puts him in the skeptics' camp, but he nevertheless said that portfolio insurance is a valid use for the metal:

There are brief periods when gold is a good speculation, but it is never a good "investment."

Gold is never a good investment because an investment is something that produces an income return. A bond or CD produces interest payments. A stock produces rising earnings and dividends. A real estate investment produces rental income. Something is in motion and changing.

Gold is a reflex investment. You buy it because of things that are happening to something else, like money or global peace. You buy it betting that the world is in a rapidly moving handbasket.

Does that mean you should never own gold coins? No.

It only means you should limit it to an insurance position, not more than 5 percent or 10 percent of your financial assets.

It looks like the 5-10% portfolio-insurance theme is becoming something of a happy medium.