Gold Gains as Stocks Slide

Updated from 11:33 EST

Further evidence of moderating economic activity weighed on the broader stock indices Wednesday, but sent gold soaring to almost $620 an ounce.

The Institute for Supply Management's index for October unexpectedly fell from 52.9 to 51.2 in September, well short of consensus forecasts of 53. The index is derived from a survey of purchasing managers and includes data on new orders and inventories, among other items.

Separately, the Commerce Department published data showing that construction spending fell 0.3% in September, compared with expectations of zero growth. The prior period was revised downwards from 0.3% to no growth.

"What the Fed is trying to do, is to precipitate a slowdown," says T.J. Marta, a fixed-income analyst at RBC Capital Markets. "I don't know that they would be too unhappy" with this data.

Marta adds that the economic news will be bearish for the U.S. dollar, as it likely shortens the time before policymakers believe short-term interest rates can be cut while minimizing the risks of unleashing inflation.

That's good news for the gold bulls since bullion prices tend to rally as the dollar falls, but not so much fun for equity investors who saw the Dow Jones Industrial Average pull back 50.67 points to 12,031.26, recently. Although the greenback started the morning weaker, losses were reversed by the afternoon with a dollar recently buying 117.03 yen, marginally up from 116.96 yen late Tuesday. It was virtually unchanged against the euro, which was trading at $1.2765 from $1.2763 a day before. The lack of currency price movement didn't bother the bulls, however.

"The sentiment is for higher gold prices," says Bernard Hunter, director of precious metals at Toronto-based bullion bank ScotiaMocatta. "And the funds are trading it that way." He adds that the action was spearheaded by professional investors and speculators.