Dow Jones Industrial Average
tanked 449 points Wednesday, the dive extended Monday's panic-driven, 504-point selloff. With all of the toppling of financial-firm dominos and volatility at its highest level since October 2002, frightened stock-sellers sought out the liquid investment of last resort -- gold.
The price of an ounce of gold shot up by $84, the largest one-day jump in 26 years, to $863.85, sending gold mining and bullion funds to extraordinary gains this week. Excluding inverse funds, the average precious metals fund tracked by TheStreet.com Ratings bounced back 12.3% in the five trading days ending Thursday, Sept. 18.
The largest moves in funds came from the
PowerShares DB Gold Double Long ETN
, up 30.1%;
PowerShares DB Gold Short ETN
, down 10.8%; and the
PowerShares DB Gold Double Short ETN
, down 20%. These exchange-traded notes are tied to unsecured
debt and the Deutsche Bank Liquid Commodity Optimum Yield Gold Index that tracks gold futures contracts.
Leveraged 150% to the Dow Jones Precious Metals Index, the
ProFunds Precious Metals UltraSector ProFund
struck the mother lode, gaining 22% for the period.
Mining shares also helped
Market Vectors Gold Miners ETF
to dig up a total return of 21.3%. The largest members of the Amex Gold Miners Index held by the fund include
. However, performing better were
Great Basin Gold
, up 49.7%; and
Harmony Gold Mining
, up 42.2%.
If you are considering the bullion purchase of
SPDR Gold Trust
iShares Silver Trust
, up 13.3% and 15.2%, respectively, then take a look at the
Central Fund of Canada
, a closed-end fund up 19.9%. The fund currently holds 55.6% gold bullion and 41.7% silver bullion.
Performing nearly as poorly as the funds shorting gold, the continuing slide of not-so-precious metals, nickel and aluminum, shaved 9.7% from the
iPath Dow Jones-AIG Nickel Total Return Sub-Index ETN
and 5.7% from the
iPath Dow Jones-AIG Aluminum Total Return Sub-Index ETN
. The culprits in this metals-market meltdown? With nickel stockpiles at a four-year high, it's short-term oversupply as well as lower estimates of global economic growth and demand amid the turmoil.
A special word of caution about exchange-traded notes: these are unsecured debt obligations of financial institutions. These iPath ETNs are senior, unsubordinated debt of
, which on Wednesday took on additional risk and potential reward in purchasing the North American investment banking and capital markets business of the bankrupt
By Friday, hope returned to Wall Street and financial markets around the world in the form of a flood of liquidity from central banks and government promises to buy up massive quantities of the toxic securities plaguing financial institutions to avoid the need for more bailouts. Even if the plan works to save financial stocks, the resulting inflation may support the price of gold.
For more information, check out an
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.