Gold rush going bust?

Money | Leigh Jones

Gold rush going bust?

Gold bars in Dubai, United Arab Emirates.
Associated Press/Photo by Kamran Jebreili, File

Gold prices rose slightly today after a precipitous plunge on Monday rattled precious metal investors around the world.

The sell-off dropped prices 9.4 percent, the steepest decline in 30 years. The U.S. stock market also saw its biggest one-day drop since November. But as markets stabilized and stock prices rose, investors started buying precious metals again. By early afternoon, gold prices had risen almost $30—just shy of 2 percent.

Gold and silver prices started to slide after the beginning of the year when predictions for an economic meltdown fueled by budget wrangling in Washington never materialized. Instead, stocks have continued to record highs, thanks to overall investor confidence. Inflation often drives demand for precious metals, with investors buying commodities when they’re fearful of rising prices.

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Despite Tuesday’s slight recovery, gold is still down 27 percent since it’s record high in August 2011. Although a bad sign for commodities investors, the waning interest in gold and silver may signal hope for the overall economy. 

“Gold is an insurance asset for when things go very wrong,” said Nicholas Brooks, head of research and investment strategy at ETF Securities. “It’s just that people don’t feel the need for insurance right now.”

And while precious metal prices slowly declined, the stock market enjoyed a record run.

“In this world of hot money, ‘what have you done for me lately,’ people have lost patience,” said Peter Schiff, CEO of Euro Pacific Capital. “Especially when the Dow started making new highs, they started thinking, ‘Why am I in gold? I’m missing all the action.’”

Some analysts believe the stock market will only continue to climb, with predictions of it topping 1,600 or even 1,700 by the end of the year. But other economists describe rising stock prices as a bubble bound to burst sooner or later. If it does, investors are more than likely to take a shine to gold again.

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