But how exactly does gold act as an insurance policy? In other words, how does it pay-off if something really bad happens?
"But how exactly does gold act as an insurance policy? In other words, how does it pay-off if something really bad happens?"
It depends on how bad things are. If we simply fall into a real depression, or inflation, as dollars by less and less or become scarce, then the value of gold, in those dollars goes way up. Say you are on a fixed or semi fixed retirement income and suddenly inflation double digits again while your income goes up 1 or 2% a year. If you are sitting on gold or silver, you fix the difference. If things go really south and people stop taking paper money, then barter and hard money become vastly more valuable. One might not be able to buy gas for paper or might need so much of it that the paper becomes pretty worthless. In those cases your 2006 silver dollar might buy you a tank of gas when $100,000 in paper money might not.
Put another way...folk will always take gold and silver. Paper of sometimes worthless.
Think Germany 1922-23, Bolivia in 1983, Peru in the 80's or Iraq. A million Iraqui dinares are worth $900.
When the real value of currency is inflated to worthlessness gold should retain its purchasing power.