Today gold is one of the most popular alternative investments available to Americans.

Viewed as a hedge against both disaster and inflation, gold is considered a timeless investment by many.

Yet, at the same time, it should be understood that gold is just that – gold. It is not a particularly productive asset, nor is it particularly widely used outside of highly specialized fields. In the end, it is fear, not productivity, that drives the trading and hoarding of gold.

Gold is known for its many attractive and useful qualities. It is the most malleable and ductile metal and thus small quantities can be hammered into a single sheet with a relatively large area.

Gold has many applications such as crowns in dentistry, wiring in high-end electronics and protective facial coverings for astronaut helmets.

Gold is also particularly rare, and is the best-known rare metal. According to National Geographic, as of 2009 only 161,000 tonnes of gold had been mined from the Earth. This corresponds to roughly 8,333 cubic meters, which would be about 20.3 meters a side on a vast gold cube.

Moreover, as of 2006 the yearly global gold output was 2,471.1 tonnes. Thus, gold is not a fast-growing asset, and will most likely remain scarce for many years to come.

However, the scarcity of gold is related economically more to its perceived value and acceptance as an investment scheme than as a productive asset.

This is due to the fact that while gold can be fairly useful in certain applications, its rarity and its perceived value mean that you will not find it wiring the entirety of your computer’s innards.

Rather, it will be sitting in an investment bank somewhere, gathering dust – although it will not corrode.

Investing in gold produces no new economic value; it merely serves as a shield against inflationary measures taken by governments.

Thus, investment in gold and its value can be based on two measures: one, the actions taken by governments with regard to currency measures; and two, perceptions about potential disaster and economic activity.

Although both are relevant in the global economy, for the United States a complete economic meltdown is highly unlikely at this point.

Curiously, the fact that the U.S. currency has inflated over the years serves to obscure the value of gold in dollars over time. While gold is nominally at its highest dollar value, it is not at its highest “real” value.

In this case, “real” value refers to the currency value of a unit of gold adjusted for inflation. According to www.inflationdata.com, the value of gold in 2009 dollars reached $2,189 per troy ounce in 1980. This is substantially higher than the 1,256.27 spot rate quoted by www.goldprice.org as of June 27, 2010 at 10:17 p.m. Eastern time.

The 1980s gold price can be traced to the recessionary issues of the late 1970s and early 1980s. During the late 1970s, Paul Volcker raised the Fed interest rates steadily until June 1981, when they reached 20 percent. This was a result of the “stagflation” that took place during the 1970s due to currency inflation combined with price controls.

The relevance of this pricing data is that increases in the value of gold are more related to currency inflation and gold speculation than to any real value that gold may hold as a semiproductive asset. Thus, as economic conditions worsen, investment in gold increases, which can lead to a speculative bubble as people turn to precious metals as a form of investment.

Gold is a pretty metal with many wonderful uses and applications. However, as an investment strategy, it should be understood that gold is a tool to escape currency inflation and to hedge against economic events that would further devalue currency.

Therefore, while gold can be used to “park” one’s cash on hand while waiting for economic conditions to change, it is neither a miracle metal nor a miracle investment strategy. It is simply a scarce, semiproductive asset. Its value is dependent on its scarcity and its acceptance as an economic means of transacting business around the globe.

Yet gold does not really produce any substantial volume of new goods and services. Economic currency, whatever the form, has no relevance if no new goods and services are being produced and exchanged in an economy.

Put another way, what good does a bar of gold do you if you have no productive assets to trade?

It means that gold, as an investment, is only as good as the economic foundation and productive assets upon which it is traded, hoarded and treasured.

Fear and hysteria may add to its perceived value, but in the end, an ounce of gold is just a chunk of inert, pretty yellow metal without an economy to support it. ‘Nuff said.

– Scott Conover is a graduate student in business administration at Oregon State U.