Turbulent times raise gold’s value

Investor worries are fueling a run-up in gold prices.

NEWSDAY

NEW YORK — Gold always glitters. Lately, however, it’s been blazing.

Powered by its value as a hedge against uncertainty in an economic environment that to many appears dicier every day, gold’s price began soaring in the fall. In late December, it blew through its record high of $825.50 an ounce set in January 1980, and last week it hit $901.60 an ounce at the COMEX Division of the New York Mercantile Exchange.

Recently, gold prices have fallen back somewhat. But analysts say gold’s cooling-off period may not last long.

After the sharp run-up, it isn’t surprising to see some selling by investors who want to lock in profits, said Carlos Sanchez, precious metals analyst with CPM Group, a Manhattan-based commodities research, consulting, asset management and investment banking firm. “But given what’s been going on ... it may be just a matter of time before prices [climb again] and test $1,000.”

What’s been going on, Sanchez said, is a huge clamor for gold by hedge funds, banks and investment funds of all kinds hoping to protect themselves against volatile financial conditions. The metal also is coveted by speculators who hope to make money on fast in-and-out trades.

Gold is seen as a haven during turbulent economic times because in contrast to other assets, its purchasing power has remained stable over the centuries, according to the World Gold Council, a gold advocacy group funded by the world’s leading gold mining companies. Statistically, it also has proved to be a good hedge, or counterbalancing factor, to limit losses from extreme movements in other investments, such as stocks.

Such qualities make gold alluring now to investors worried about rising oil prices, inflation, the declining U.S. dollar, tensions in the Middle East, and concerns that the U.S. economy may be falling into recession because of the subprime mortgage crisis, Sanchez said.

Although the jewelry industry is a large consumer of gold, and the metal is used for other purposes such as dentistry and electronics, “the main driver [for gold prices] has been investment demand,” he said.

That’s not to say that the market for bling isn’t feeling the tail wind, however. “Rising gold prices are affecting the manufacturer, and it’s going down the pipeline ... to the retail stores,” said Marc Solomon, owner of Solomon’s Jewelers stores in Plainview and Albertson and immediate past president of the New York State Jewelers Association.

Solomon said he hasn’t re-priced his inventory of gold jewelry, but when he purchases new products that reflect the huge rise in gold prices, he will be forced to.