Few investments elicit as visceral a response from investors as gold. As perhaps gold’s most notable skeptic, Warren Buffett observes that gold “doesn’t do anything but sit there and look at you.” Stocks are more productive assets, he maintains. Fearful of high stock prices or runaway inflation, advocates view gold as a form of insurance, a business concept that Buffett knows well.

Who’s right? Depending on your time period and preferred currency, both views have been proven right … and wrong. Regardless of your risk tolerance, holding gold today as a store of value is a risky proposition. But so are stocks, however productive they have been over the last decade.

Notwithstanding the long-term merits of stocks generating earnings, as opposed to gold just sitting there, the case for investing in gold today is not simply a vote against stocks. As a diversifying asset versus stocks, gold is more attractive than other traditional alternatives that serve as a store of value for investors. With fixed income yields falling below the prevailing inflation rate, cash or short-term bonds are likely to lose purchasing power over the next decade. Even Buffett, as the sage steward of Berkshire Hathaway now sitting on over $100 billion in cash waiting for better investment opportunities, is probably worried about his mountain of money eroding in value.

As detailed in our recent issue of the Hedge Fund Monitor, gold is worth considering as an alternative to cash for preserving capital or rebalancing later into stocks at more attractive prices. Over thousands of years, gold has a well-documented history of delivering on its promise of preserving value, especially against fiat currencies backed only by government promises. Since the birth of Christ, an ounce of gold still buys, more or less, the same set of goods and services. Try doing that with the U.S. dollar since it was no longer backed by gold almost 50 years ago.

Although all governments today have forsaken the role of gold backing their currencies, given gold’s overbearing constraint on economies trying to create credit, gold has not lost the properties that made it, well, the gold standard. Because gold is scarce by nature, it retains its value better than alternatives that can be readily printed, mined, or otherwise produced. Furthermore, since gold has limited practical uses, it is not generally consumed and continues to exist as a collective store of value with deep liquid markets.

At times, a dollar invested in Treasury bills has earned a positive real rate of return, allowing it to be the preferred store of value over gold, which earns nothing in a vault. However, during prolonged periods of negative real rates of return, such as the last decade since the Global Financial Crisis, cash so invested usually loses ground against gold. In addition to being a hedge against inflation over long time periods, gold is well recognized as a “safe haven” asset. During financial crises, when stocks are crashing, gold often appreciates, making it a desirable source of funding for rebalancing back into stocks when they are more attractively priced.

While gold is a clumsy, even antiquated, store of value that is hard to physically transport and exchange, imagine a world of spendthrift governments needing to inflate away their fiat currency liabilities while investors watch their liquid savings become increasingly worthless. Gold may have its moment to shine again. Alternatively, gold prices may fall from current levels, even dramatically. However, that’s probably because real rates of return on cash turned positive again, which likely reflects that economies have unexpectedly become much more productive with invested capital and therefore able to generate real rates of returns. In such a positive outcome for stocks and bonds, gold as a form of insurance still served its purpose. Just because the dreaded risk of an insured event (e.g., a house fire, a car crash, or a shortened life) did not occur does not mean such insurance was useless. It allowed you to more confidently take risks elsewhere.

For more about the history of gold as a form of money, the reasons behind the recent renaissance in gold, the potential roles of gold for institutional investors, and the alternative approaches to invest in gold-related themes, check our latest edition of the Hedge Fund Monitor titled Gold: Real Asset, Risk Mitigator, or Pet Rock?