AP: Investors are wondering: Whatever happened to gold?
Ultimate safe-haven commodity is behaving just like all the others
NEW YORK - For years, investors known as gold bugs snapped up the metal and socked it away, betting that a colossal economic crisis would one day slam financial markets and send gold prices through the roof.
For many investors, that grim scenario is in full swing, except for one thing: After hitting $1,000 an ounce for the first time in March, gold has fallen into a rut and shows no sign of budging anytime soon.
Gold's failure to flourish despite broad financial carnage has disappointed many of the metal's champions. Others say it's simply in a lull and is ripe for another big surge. But most gold buyers agree that the metal's lackluster performance lately has been surprising.
"It's been a puzzle for most of us," said Geoff Farnham of Venice, Calif. who inherited some gold holdings and recently began buying gold coins as "insurance."
"In hard times, gold is a good thing to have," the retired software developer said. "Knowing that there aren't a lot of gold coins out there to buy, seeing the price continue to drop has been curious."
It's also been punishing for investment portfolios. Since soaring to an all-time high of $1,033.39 an ounce on March 17, gold has plummeted nearly 30 percent. Gold rose $2 to settle at $733.20 Friday - roughly the same level where it traded a year ago.
So what happened? As the financial crisis pummels financial markets around the globe, hedge funds and other large investors who drove gold to dizzying heights earlier this year are now racing to unwind those positions to raise cash and cover huge losses. The massive deleveraging has pounded other commodities from crude oil to corn to copper.
"Gold is being pulled down by indiscriminate selling of virtually every asset," said Jeffrey Nichols, managing director at New York-based American Precious Metals Advisors. "You could call it collateral damage."
Instead of gold, investors are pouring money into the newest safe-haven asset: cash. That has pushed the dollar to multiyear highs against the euro and the pound, hurting demand for gold among investors who buy the metal as a safe-haven against inflation.
With economists now warning that a world economic slowdown could bring about deflation, or a sustained period of falling prices, gold analysts say it's unclear how the metal will respond.
"Gold hasn't been tested in a true deflationary crisis, so we don't what will happen to prices," said Jon Nadler, precious metals analyst with Kitco Bullion Dealers Montreal.
Some gold watchers are betting for another big climb.
"Fundamentals will re-establish themselves as the driver of the gold market, and we believe we'll see $1,250 gold during this period," Donald Doyle, chairman and CEO of New Orleans-based precious metals dealer Blanchard and Co., said in a recent statement.
