Second, the definition ignores tail risk, or the risk of extreme outcomes, including negative outcomes.
Interestingly, gold has a dual nature, acting both as an inflation hedge but also as a tail risk hedge.
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Almost every institution said they are or will soon be offering a product to guard against black swan events or tail risk.
Tail risk makes put options worth more than Black-Scholes predicts.
Even the subprime crisis with the accompanying talk of six-sigma tail risk must be viewed through the lens of a history littered with credit booms followed by busts, many of them real estate related.
As Mark Carney - our soon-to-be Bank of England governor - joked at the traditional session on the global economy on the final day, he arrived on Thursday to find people saying the "tail risk" in the global financial system had been reduced.
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As gold aversion surged, investors bought gold to hedge out tail risk and destructive scenarios, including a Cypriot Eurozone exit and political risk in Italy, where Pier Luigi Bersani has failed to garner support from Silvio Berlusconi and Beppe Grillo of the 5-Star Movement to form a government.
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Finally, gold offers tail-risk protection as it acts like a safe haven in case of systemic events.
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The organization maintains that some gold in a portfolio offers a diversification that can help investors at times when tail-risk events hurt other markets.
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It, in fact, has a very fat tail, and in 2008, that portfolio would have lost 37%, where a risk-parity portfolio would have lost less than half that amount at the same targeted level of volatility.
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