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Gold nears record high as some investors seek cover

April 30, 2010 | 10:12 pm

Rather quietly, gold once again has been playing its classic role of a haven in times of rising uncertainty.

Near-term gold futures in New York jumped $11.70 to $1,180.10 an ounce on Friday, the metal’s highest level of 2010. The price now is within 3.2% of the all-time closing high of $1,217.40 reached on Dec. 3.

The SPDR Gold Trust exchange-traded fund, designed to track bullion’s market price, is up 7.5% year to date to $115.36 a share, beating the 7.1% return of the Standard & Poor’s 500 index (including dividends), after the S&P index lost 2.5% this week.

Goldcoins Silver and platinum also have rallied sharply since early February, to $18.61 and $1,745 an ounce on Friday, respectively.

Some investors and traders clearly are turning to precious metals as a hedge against Europe’s government-debt crisis. Gold has gained 3.3% just in the last six trading sessions, after Greece formally requested the financial bailout offered by the rest of Europe and by the International Monetary Fund.

“Gold is 100% about Greece,” said Dan McMahon, head of institutional equity trading at brokerage Raymond James & Associates in New York.

Well, maybe not 100%. The growing damage to the reputation of Goldman Sachs Group, Wall Street’s preeminent investment bank, also may be driving some investors to seek a hedge against the possibility that Goldman’s woes could lead to a new chapter in the financial crisis that began in 2007.

Reports on Friday said Goldman has become the target of a criminal investigation by the Justice Department, driving the bank’s shares down 9.4% for the day -- and wiping out more than $8 billion of the firm’s market capitalization.

But as a buffer against calamity, gold hasn’t been foolproof since the Great Recession began. In the financial-system meltdown of September-to-November 2008 the price dived from $909 to $705 over seven weeks as investors sold anything they could to raise cash.

More recently, when worries about a spreading crisis of confidence in European sovereign debt flared in early February, gold’s fans would have expected the metal to rally. Instead, even as the euro and other currencies tumbled, gold suffered its biggest one-day drop in more than a year, losing $49, or 4.4%, to $1,062.40 an ounce on Feb. 4.

Once again, that was a trading session in which investors were in the mood to sell almost everything --  except gold’s arch-rival, the dollar.

For many investors, the great appeal of gold remains its potential to protect against the risk of paper currencies being debased by the easy-money policies of governments and central banks.

The metal also has been a great friend to buy-and-hold investors over the last decade: Gold’s price has risen every calendar year since 2001 (when it closed at $279 an ounce), a track record few other investments have matched.
 

-- Tom Petruno

Photo: The American Eagle gold coin, top, and the South African Krugerrand. Credit: Genaro Molina / Los Angeles Times

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