As the stock market plunged nearly 1,000 points before closing down 347 points on Thursday, investors flocked to the safety of gold. The price per ounce of the shiny yellow metal jumped to $1,200, a 3% increase for the day. Investors can add that to the 30% jump over the past year.
All the largest gold mining companies saw modest stock increases, while trading volume shot through the roof. Newmont Mining, (NEM) the largest gold producer in the U.S., showed a 100% leap in its daily average volume as its per share price inched up about 2% late in trading. Barrack Gold (ABX) also climbed about 2% on unusually heavy volume. The popular exchange traded fund SPDR Gold Trust (GLD) closed up nearly 3%.
Gold's strength comes as no surprise given the market's gyrations. "As we are seeing, the financial world's currencies are vulnerable to these wild swings, and gold is now, as in the past, considered a safe haven," says Barry Cooper, an analyst with CIBC World Markets.
However, it's worth realizing that gold's rise comes at the same time that the U.S. dollar is rallying. That's unusual. Ordinarily, when the dollar strengthens, demand for the yellow bullion softens since it's then more expensive to buy.
Cooper says investing in gold isn't just an emotional or tangible investment, but a prudent one. The industry is undergoing big demand by consumers while supply is staying relatively flat. This classic supply-side economics means the large gold producers are generating higher profits.
Over the long term, or at least over the past five years, gold companies have shown modest returns compared to the broader market.
Omar Jabara of Newmont Mining notes that his company's earnings have rebounded, and the stock is trading near its 52-week high.
"What you are seeing is proof that gold has been a safe haven in times of economic uncertainty," Jabara says. "Paper currency is getting devalued, and investors are turning to gold to protect their hard-earned savings."
Gold delivery for June was rising $24.70 to $1,199.70 an ounce at the Comex division of the New York Mercantile Exchange. Gold prices Thursday traded as high as $1,201.70 and as low as $1,173.
Introduction to ETFs
The basics of Exchange Traded Funds and why ETFs are hot.View Course »