What it is:
How it works/Example:
Gold bulls generally consider gold a "safe" hedge against inflation and even against volatile markets. Throughout history, gold has traditionally risen in value when things such as wars, the Great , or high inflation have occurred. For example, from 1970 to 1975, the price of gold rose 375% as the Consumer Price Index (CPI) posted double-digit increases. When Standard & Poor's downgraded U.S. Treasury debt in 2011, gold also reached record highs in response.
Why it matters:
Though gold no longer backs U.S. currency, it is still widely regarded as a standard of value and thus often considered a relatively safe place to invest in times of uncertainty. It is important to note, however, that gold prices can be volatile as well, leading some analysts to question the psychological hold gold has over certain investors.