Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Precious metals lure investors as other markets stumble

February 11, 2009 |  7:06 pm

The stock market can only stare forlornly at the action in precious metals markets this year. Prices of gold, silver and platinum all have rallied to their best levels since at least September, while Wall Street struggles.

Gold on Wednesday jumped $30.10 to $943.80 an ounce in New York futures trading, reaching its highest price since July 22.

The SPDR Gold Trust exchange-traded fund, which invests directly in bullion, rose $2.08 to $92.29 a share. The price is up 6.7% this year, while the Standard & Poor’s 500 stock index is down 7.7%.

Silver futures surged 39 cents to $13.51 an ounce Wednesday, the highest since late August. (Check out the iShares Silver Trust ETF.) Platinum reached $1,080 an ounce, up $45.80 and its richest price since September.

Goldfeb11 After selling off with virtually every other asset in the fall market meltdown, the precious metals once again are playing the role of havens: Investors’ jitters about the state of the global economy and financial system are driving some to buy gold, silver and platinum as a hiding place.

"You’ve got the flight-to-quality going on," says Matt Zeman, a metals futures trader at LaSalle Futures Group in Chicago.

The metals scored big gains Tuesday and Wednesday in part on Wall Street’s disappointment over the U.S. Treasury’s apparent lack of progress on Phase Two of the financial-system rescue.

What’s more, with Congress set to pass a fiscal-stimulus bill worth $800 billion or so, some investors worry that heavy government spending (along with rock-bottom short-term interest rates) will stoke inflation down the road, which could undermine the dollar’s value. If people lose faith in the paper currency, the natural beneficiaries could be the oldest currencies -- gold and silver.

Whatever their rationale, more investors are jumping into the precious metals markets. The U.S. Mint shipped 92,000 one-ounce gold American Eagle coins to its dealer network in January, up sharply from 22,500 in January 2008.

Government mints worldwide "are producing as fast as they can to meet demand," said Ken Edwards, a partner at gold dealer California Numismatics in Inglewood.

Still, he cautioned that, in the short term, metals prices always are at the mercy of speculators in the futures markets. Dumping of futures by cash-short hedge funds and other investors last fall slammed gold from $909 an ounce in late September to $705 by mid-November -- even as coin demand remained robust.

"The people playing short-term moves [in futures] have much more power over the market than the guy buying 3 ounces of gold," Edwards said.

That was evident a year ago, when gold capped a six-year advance by peaking at $1,004.30 an ounce on March 18. The market then lost its mojo.

As the $1,000 price mark looms again for gold, bullish traders no doubt will be hoping for a decisive advance through that level -- a thrust to grab the attention of a public starved for investment winners.

-- Tom Petruno