Based on a study of gold's usefulness that goes back to Roman times, two experts are questioning everything we "know" about the metal, writes Howard R. Gold, also of The Independent Agenda.

On Monday, the rationale for owning gold collapsed along with its price. The yellow metal plummeted more than 10%, settling above $1,350 an ounce at the close before bouncing back a bit Tuesday.

That was its lowest level since February 2011, crashing through every support level in sight and pushing gold deep into bear market territory. It’s down 28% from its peak above $1,900 in August 2011.

But gold’s price could be headed much, much lower, said Campbell Harvey, a professor at the Fuqua School of Business at Duke University. Harvey has looked at gold prices over the centuries, and concludes that it’s still trading at lofty multiples of inflation.

At more normal multiples, he told me, it would be changing hands below $800 an ounce. If it gets there, many investors who loaded up on gold coins, bullion, shares of gold mining companies, and gold ETFs will get a rude awakening.

In a recent paper, Harvey and colleague Claude R. Erb, whom Mark Hulbert interviewed earlier this week, systematically demolished most of the reasons people have owned gold in recent years. You can download their paper, “The Golden Dilemma,” for free here.

There’s no evidence, they say, that gold has been either an effective currency hedge or a “safe haven.” And it’s not even a very good hedge against inflation, except in some very extreme circumstances.

Indeed, I would argue that gold bugs’ capitulation on the prospects for hyperinflation is behind the current price collapse.

But let’s start with its value as a currency hedge. “There seems to be little connection between currency returns and gold returns,” Harvey and Erb wrote. “In fact, the change in the real price of gold seems to be largely independent of the change in currency values.”

Nor is it the kind of “safe haven” in chaotic times investors wish for, peasant lore and urban legends notwithstanding. Harvey and Erb tell about the “Hoxne Hoard,” the largest collection of Roman gold and silver coins ever discovered in England. Archeologists dated the collection to the 5th century, “a time of great social stress and political turmoil in England,” when the Romans were abandoning the island.

But when the treasure was unearthed in 1992, it was untouched, suggesting that the wealthy family that hoarded it got little use out of it. "Indeed, the Hoxne Hoard is an example of an ‘unsafe haven,’"  Harvey and Erb conclude.

Gold is also, well, pretty heavy, making it difficult to schlepp around when society has broken down and you have to move quickly. Not to mention that we haven’t gotten to that state in the modern world—and all the moneyprinting by all the central banks won’t get us there, either.

NEXT: A Poor Inflation Hedge

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