Gold Prices Rally on Safe Haven Buying
NEW YORK (TheStreet) --
Wednesday were rallying past their 2010 highs after investors bought gold as a safety net against a euro crash and Greek debt.
Spooked Investors Buy Gold
Gold for June delivery was rising $7.10 to $1,169.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,175.30 and as low as $1,161. The
was slipping 0.10% to $82.48 while the euro rebounded 0.17% after hitting an 11-month low against the dollar.
Schiff: U.S. Dollar Will Crash
The spot gold price today was losing 60 cents, according to Kitco's gold index.
Gold prices Wednesday hit an all time 2010 high
of $1,175 an ounce as gold's appeal as a safe haven investment returned with vengeance.
Standard & Poor's slashed Greece's debt rating
to junk, downgraded Portugal sovereign credit two notches to A negative, and cut Spain's long term rating to double A. The news spooked investors and prompted a flight to safety. Traders bought U.S. treasuries and dollar based commodities like gold. Gold is appealing as a safe haven asset because it is considered money that never loses value.
"
Gold is really showing its true colors as a safe haven asset right now,' says Nicholas Brooks, head of research and investment strategy for ETF Securities. "In a normal environment if you were seeing this kind of data coming out of the U.S. you would see risk assets going through the roof and to some degree gold might suffer in that environment ... but the Greece issue and the potential impact on the rest of Europe has brought the safe haven aspect
of gold out."
Many analysts have criticized rating agencies like Standard & Poor's for not responding fast enough to the subprime crisis and for giving weak mortgage backed securities a positive rating. Fitch has already cut Portugal's rating in March but only to double A negative, so the S&P might be trying to stay ahead of the curve this time. Portugal and Spain are also at risk even through their debt situations are not as dire as Greece's. The U.S., so far, has been able to maintain its triple A sovereign debt rating, but with a $14 trillion budget deficit looming over the country, there are some worries that the U.S. might suffer a future downgrade.
The
euro was hit hard
Tuesday as the IMF and European Union worked out the terms of loaning as much as 45 billion euros to Greece. The yields for two-year and ten-year loans to Greece were soaring to 20.8% and 11.69%, respectively. The harder it is for Greece to raise money, the more dependent it will be on the EU/IMF financial aid package. There are rumors that Greece could need even a bigger bailout to meet its debt obligatins.
The
Federal Reserve
announced its decision to keep key interest rates unchanged at zero to 0.25 percent vowing to keep rates low for an extended period of time to stimulate the economy. The news helped rejuvenate the dollar as the Fed said it saw no signs of inflation. Typically, low rates lead to cheaper money and increase the flow of dollars in circulation, which pressures the currency and supports higher gold prices. However, as long as inflation is not on the horizon, the value of the dollar is moderately safe.
The
was slipping 3 cents to $18.08 while copper prices were up 1 cent at $3.37.
Mining stocks, a riskier but more profitable way to
, were rallying.
Barrick Gold
(ABX)
was rising 4.79% to $42.62 after the company said it earned 75 cents a share in the first-quarter. Barrick estimates it will produce 7.6 to 8 million ounces of gold in 2010.
Newmont Mining
(NEM) - Get Report
was rising over 4% to $55.40 while other large-cap miners
Kinross Gold
(KGC) - Get Report
and
Goldcorp
(GG)
were trading at $19.09 and $43, respectively.
Shares of
Freeport McMoRan Copper & Gold
(FCX) - Get Report
were rising 0.56% to $76.58 while
Hecla Mining
(HL) - Get Report
was up to $6.06 after reporting first-quarter earnings of 7 cents a share.
Shares of the gold ETF,
SPDR Gold Shares
(GLD) - Get Report
, were slipping 0.14% to $114.47.
>>More stories on gold investing
--
Written by Alix Steel in New York
.
Alix joined TheStreet.com TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.