Rising insurance premiums don't negate the need to insure...

IS GOLD in a bubble at €1000 an ounce? Let's hope so. Because if not, it would mean investors are right to keep bidding crisis insurance higher.

Buying gold is like buying an option that gives you security, liquidity and diversification when you need it most - which is when other stores of wealth fail.

Yes, the cost of insurance - the premium on gold's option - has risen since before the current crisis began. But that doesn't negate the need to insure your savings.

"First, security - the absence of any credit risk is an intrinsic quality of gold," as Hervé Hannoun, then of the Banque de France, now of the BIS, said at the FT's Gold Conference in mid-2000.

"Second, liquidity - in situations of political turmoil or high global inflation, gold's liquidity is unchallenged. [And third,] diversification - gold has shown a very low and even a negative correlation with the Dollar and US Treasuries...it enables you to improve your risk/return profile."

Now, glancing back across the 10 years (and 590 tonnes of French central-bank gold sales) since Hannoun spoke, that third factor - diversification - might seem the most valuable.

After all, gold has risen 350% vs. the Dollar since June 2000, while the S&P has lost almost one fifth. US Treasury bonds have paid less than half the real yield of the preceding two decades (1.8% vs. 4.4% on 10-year Treasuries).

But it's the first two attributes - security and liquidity - that make gold's long-term diversification possible. In periods of investment stress, its security and liquidity are unparalleled. They add up to outperformance when other, more normally productive stores of wealth either slump (like today) or deliver grinding losses (as they have over the last decade).