Question

Explain the difference between “hedging” and “speculating” by explaining why someone who wishes to “hedge” against inflation might choose to purchase gold. Explain why someone who wishes to “speculate” might also choose to purchase gold. Relate the motivations of “hedging” and “speculating” to the topic of Christianity.

Answer 1

Speculation and hedging are different terms that is used to describe traders and investors.

Speculation involves trying to profit from a price change of a security. This is usually done by the trader to make profit by price appreciation or depreciation.

Hedging is done by investors to minimise the risk associated with the security they possess. Hedging involves taking an offsetting position inorder to stabilize the price or minimize the losses.

If someone want to hedge against inflation, he can do that with buying gold because, the price change in gold historically performs better than the inflation rate of an economy unless there is no black swan event happening.

Similarly if someone wishes to speculate also can buy gold as there is no significant downfall of gold prices in the world, and if taken a long term holding the price of gold always appreciates historically.

Christianity is against gambling and betting as per bible and hence speculation is against bibles principles.