There’s been a lot of talk about gold lately, most of it speculation over the near term direction of its price now that the Fed’s aggressive program of Quantitative Easing is nearing its end. Quite frankly, I continue to be surprised by the degree of concern over something that, in the overall scheme of things, shouldn’t be nearly as important as it is.

Yet the price of gold continues to capture headlines and dominate financial media discourse, even though its long-term behavior bears little correlation to other financial assets, and quite frankly has performed very poorly as an investment over the long haul. When I started out as a stockbroker in September of 1983 gold was worth around $400 an ounce, about one third of its current value.

Don’t get me wrong, tripling your money over 30 years isn’t bad. But it pales in comparison to the S&P 500 index, which has increased in value more than 10 times over the same span after adjusting for dividends and stock splits. And that’s another problem with gold; not only does it not pay any dividend income while you own it, but it can actually cost you money to store it.

So what else is wrong with gold? First of all, there isn’t nearly as much gold in existence as you may think. All of the gold ever mined – approximately 170,000 metric tons or so – could fit inside the gym of your local high school. That’s a lot when it’s all in one place, but not so much when it’s spread all over the world.

Although a finite supply of something is usually beneficial to its price, too little of something makes it impossible to integrate into a meaningful sector of the economy. One reason why gold is used so much for jewelry is that it is so pretty, but another reason is that you don’t need very much of it for that purpose. But if gold was necessary to fuel an automobile or build a skyscraper, then we’d be living in a very different world then the one we do now thanks to much larger supplies of oil and steel.

And even though oil and steel are lousy investments in and of themselves, vast fortunes have been made by the people and companies who have used them to energize our planet and house its inhabitants. In other words, you can build large industries around more plentiful resources like oil and steel, but you can’t build much industry around something as scarce as gold.

Nevertheless, primarily for cultural reasons, it is still viewed as a “must-have” asset during times of rising inflation. Prior to 1971 when our currency was directly linked to gold that made a lot of sense, but now that the U.S. and all other major nations use a fiat currency it is difficult to justify linking gold so tightly with money. In theory, at least, the price of gold is no more tied to the value of the dollar than is the price of oil or steel.

However, currently there is so much money tied up in financial instruments that use gold and the dollar as their subjects that a de facto relationship does exist. Along with U.S. Treasury notes, the relative value of the three instruments have become intertwined in a byzantine labyrinth of options, futures, and various forms of “synthetic” securities that in the near term it would be impossible to decouple one from the others without causing enormous ripples throughout the global financial system.

All that said, we include a gold ETF in the ‘Inflation Hedges’ sleeve of the Personal Finance Fund portfolio for the simple reason that its price behavior during times of rampant inflation is entirely predictable: it goes up in value. Sometimes it goes up a lot, such as three years ago when it topped out above $1,800. And so long as enough people believe that it should do that, then it will continue to do so. Eventually the price of gold will decouple altogether from the value of money, but that probably won’t happen unless we get to the point where there is a true global economy operating on a single form of fiat currency.

Until then, you can reliably count on gold as one of the few true inflation hedges available in the market.