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As a hiding place from global turmoil, gold and silver top Treasury bonds

February 23, 2011 |  5:05 pm

In the battle of the money havens, precious metals are beating U.S. Treasury bonds.

As oil prices continued to rise and the stock market slid Wednesday, some investors looking for a safer port pushed gold prices higher for a seventh straight session: Near-term gold futures in New York rose $12.90 to $1,413.40 an ounce, nearing the all-time high of $1,422.60 reached Jan. 3.

But Treasury bond prices fell slightly, driving yields up, after the government saw relatively lackluster demand at its auction of $35 billion in five-year T-notes.

The notes were issued at an annualized yield of 2.19%, above the 2.17% consensus forecast of bond dealers polled by Bloomberg News.

6a00d8341c630a53ef0148c720ae0e970c-800wi Treasury bond yields had fallen Tuesday as escalating violence in Libya drove oil prices sharply higher and hammered stocks.

Buyers continued to flock to Treasuries early Wednesday as oil rose further. But the disappointing five-year T-note auction seemed to halt the bond rally dead in its tracks.

The 10-year T-note yield ended the day at 3.49%, up from 3.46% on Tuesday though still down from 3.58% on Friday.

The two-year T-note yield rose to 0.75% from 0.69% late Tuesday.

Historically, Treasuries have been a sanctuary in times of geopolitical turmoil -- during last spring’s European debt crisis, for example -- as investors bid up bond prices and push yields lower.

This time, although Treasury yields have fallen from their recent highs, gold and silver have paid off better for investors looking for assets that could offset losses in other markets.

Measured since Jan. 25, when Egypt’s popular revolt began to kick into high gear, gold’s price has risen 6.1%. Silver has been even hotter, soaring 24%. Both metals had been depressed in early January by profit-taking after last year’s gains.

By contrast, the iShares Barclays 3-7 Year Treasury Bond fund, an exchange-traded fund that owns Treasuries maturing in three to seven years, has lost 0.5% since Jan. 25, including principal change and interest earnings. More recent buyers, however, are in the black.

It didn’t help the Treasury market on Wednesday that Charles Plosser, president of the Federal Reserve Bank of Philadelphia, reiterated that he might push to terminate the Fed’s purchases of Treasury bonds before the scheduled June end of the program -- if the economy continues to show strength.

But with oil prices at two-year highs, that’s becoming a much bigger “if.”

-- Tom Petruno

Photo: The Treasury building in Washington. Credit: Andrew Harrer / Bloomberg News