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With chaos and fear running rampant in financial markets in recent weeks, many investors have once again stampeded to gold. Shortages of the precious metal are being reported at refineries and mints around the world. Last week, the U.S. Mint announced it was ceasing production for the half-ounce and quarter-ounce American Eagle gold coins for the rest of 2008 because strong demand has depleted its inventory.

In theory, mankind could have picked any precious metal as a security symbol, so why do we seek out gold when everything else is tumbling down?

"It is very irrational from a business standpoint, because we have so much better technology now for transferring wealth," says the slyly named Douglas Silver, chairman of International Royalty Corporation, a company that buys royalties associated with mining properties. "But it's cultural. It's built into our psyche that when things get ugly, gold will store value."

Still, there are some logical reasons behind the value assigned to gold. It's one of the earth's rarest elements-gold makes up about one part per billion of the earth's crust. It is also durable. Gold cannot be destroyed and it won't rust or decay. It's a very good conductor of electricity, and there's a little bit of gold in every computer, cell phone, and airbag, among many other things.

And gold is easily divisible. Unlike, say, real estate or cattle, you can reliably break it up into smaller quantities. (Try giving someone change for a cow.) Most importantly, unlike hard currency, gold cannot lose its value because of government or corporate mismanagement.

"As a physical asset, gold is no one's liability," says Matthew Graydon, head of external relations at the World Gold Council, a mining-industry trade group. "There is no risk that a coupon or a redemption payment will not be made, as for a bond, or that a company will go out of business, as for an equity, or that savings will be lost through a bank that is going out of business."

Historically, gold wasn't widely viewed as a speculative investment. "It was simply money, cash in its most basic form," writes gold watcher Doug Casey, editor of the International Speculator, a financial newsletter. "People did not accumulate gold because it could make them wealthy, but because it was a convenient liquid way to keep the wealth they had."

It's only since 1971, when the United States abandoned the gold standard to the dismay of gold bugs (people that play in gold stocks) everywhere, that the potential for making-and losing-big money in gold came to light.

And there was definitely money to be made. During what might be called the golden era of gold in the 1970s, prices soared from $35 an ounce to more than $800. Then the commodities market came crashing down, and a 21-year bear market for gold followed. But, lately, particularly as the financial crisis in this country has deepened and spread around the globe, gold has once again become a favored investment, with the price per ounce hitting its lifetime high of $1,030.80 in March as investors snapped up both physical gold and Exchange Traded Funds, like GLD, that invest in gold.

What determines the price of gold? Supply and demand is the simple answer, but there are some important caveats. The supply of gold is theoretically fixed. Like peak-oil advocates, some gold bugs maintain that gold production has reached a peak and will decline going forward, sending the price to ever-greater highs.