In the November 2015 edition of this magazine, reporter Benjamin Cole presented his view of gold (No Silver Lining for Gold).

We agree with Mr. Cole that gold can be quite useful in periods of systemic risk and that its prowess to hedge U.S. CPI needs to be taken with a pinch of salt. We disagree on gold being only useful in a doomsday scenario or that the opportunity cost of holding it is too high.

One of gold’s key benefits is that it helps investors reduce overall portfolio risk in a unique and cost-effective way. It is well known that gold has very low correlation to most financial assets. But what is not as well known is that gold’s correlation is quite negative in periods when stocks pull down sharply, yet positive when stocks rise strongly. This is not voodoo. It is a byproduct of gold’s dual nature as a consumer good (strong income growth supports jewelry buying and gold in long-term savings) as well as a store of wealth (market uncertainty incre