Still smarting from last week's market drubbing and unsure that the crisis overseas is truly over, investors keep looking for a modicum of safety. And they're turning to gold, catapulting the price of the precious metal to an all-time high Tuesday.
Spot prices closed at $1,232 an ounce, up $30, or about 2.5% for the day. The yellow metal is 6% higher for the month, and 35% for the year. The lofty price doesn't seem to be discouraging investors who see the investment as a safer haven than traditional stocks.
Gold spiked last week following Thursday's drop in stock markets, reaching $1,200 an ounce. But surprisingly the commodity has continued rising even as the stock markets rebounded following the European bailout plan for Greece and the euro.
Gold is traditionally the yin to the market's yang: One drops as the other rises, and vice versa. But that's not the case with the current run-up. And even a stronger U.S. dollar, a traditional downward force on gold prices, isn't having any effect, either.
"Gold is usually an inflationary hedge or a safe harbor in down markets, but that's not the case," says Dan Cook, senior market analyst for IG Markets. "We were looking for a pullback, but it seems to keep going up, which is quite amazing." Cook says investors are unsure about the markets and would rather pour their money into gold and take their chances than stick with other investments. Gold may still drop, but it won't fall as fast as the markets.
"It makes me concerned for the person just getting in, since it could have a big drop, But I said the same thing a month ago and it is still going up," Cook says. "Makes me wonder where it will stop."
The largest gold-mining companies are also seeing increased volume and 52-week-high stock prices. Both Barrick Gold (ABX) and Newmont Mining (NEM), the largest gold producer in the U.S., were up 5% Tuesday. Goldcorp (GG) rose more than 6%, and Kinross Gold (KGC) jumped nearly 8%.
Economist Mike Englund says investors don't have much faith in the big European rescue package and see gold as having minimal risk, and as an even better investment than stolid U.S. Treasurys.
"Investors aren't buying that the trillion-dollar shock-and-awe campaign will fix the problems in Europe," says Englund, chief economist at Action Economics. "People are asking, what about Italy, Portugal, Spain and Ireland? They might need to go through the same thing."
Plus, there's the idea that gold is tangible and something investors understand. About 70% of gold is used for jewelry or decoration, products that continue to hold value. It's also easier for the regular investor to purchase gold futures on the market in standard or mini-contracts.
Says Cook: "We're seeing a flight to quality by investors, and finances around the world are not safe, making gold the newest and best safe haven right now."
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