On Monday, gold plunged to $1,355 - its lowest price since February 2011. The fall exposed the weaknesses of gold. It illustrated the vulnerability of the gold price to hedge fund trading activity. But, just as important, it may have exposed weaknesses in your own investment strategy. Did the fall make you feel emotional? Did it give you a sleepless night? Did it make you reconsider your holding in gold?
The strongest argument for holding gold is its insurance properties. A gold bar is often reached for in periods of political and economic uncertainty. And there is evidence that the price of gold is correlated with market uncertainty. My colleague Chris Dillow explains the evidence for this in Falling uncertainty hits gold.