Gold, despite losing some of its appeal as a safe-haven asset amid sentiment the worst of the financial crisis may be over, is holding its ground on expectations of long-term inflation once the economy reheats.
Even as renewed confidence in the equities market and appetite for risk reduced the need for a safe haven, the price of gold has been lodged above $900 per ounce.
"We seemed to avoid that fear about the financial meltdown. Now, people are looking forward through the valley of this economic crisis and thinking maybe the problem is going to be too much inflation because we are creating too much money," said Caesar Bryan, who manages $450 million assets at GAMCO Gold Fund in New York.
Recoveries in other commodities in recent weeks have not eroded the appetite for bullion much, the thinking being that the government's nearly $2 trillion economic and financial system bailout means that inflation will surface someday.
"Investors have been focusing on that the recession may be bottoming out and we are moving toward an economic recovery," said Jeffrey Christian, managing director of CPM Group in New York.
"There is a greater concern about inflationary implications of all the stimulus packages and less concern about deflation," he added.
This week, a flurry of positive U.S. economic indicators, including a slowdown in both private-sector and overall job losses as well as a brighter outlook for the housing market, have powered the broad-based S&P 500 index back to positive territory for the year.
"The economy seems to be recovering well and looks a bit firmer than what people had feared it might be at this point," said Mark Johnson, a portfolio manager at Texas-based USAA Investment, which manages close to $90 billion in mutual funds.
