Precious metal stocks glittered on a day when the broader market was generally quiet and there was
-related technology weakness.
Philadelphia Stock Exchange Gold & Silver Index
was recently gaining 7.4%, while the
Dow Jones U.S. Precious Metals Index
, which has more of an international flavor, gained 9.6%.
The market capitalization of these indices is relatively small, so their moves can be volatile. The Philly gold index, for example, has a combined market cap of about $25 billion -- half of the market value
and about one-twentieth of what
is worth. "The market cap in the sector is so small it doesn't take a lot to move these guys," said Michael Durose,
A combination of rising gold prices, a volatile stock market and poor economic data are pushing the sector higher. Earlier today, gold climbed to $269.20 an ounce on the
New York Mercantile Exchange
, about $3 higher than yesterday and the highest level since March 14.
Durose said the stock market itself, recent releases of weak economic data and the specter of inflation are prompting investors to look at gold. He specifically cited data released yesterday showing workers were less productive in the first quarter, when productivity fell 0.1%. That was well below the expected 1.2% rise and significantly less than the 2.2% growth in productivity during the fourth quarter of last year. The labor costs of producing goods also rose more than expected in the first quarter.
Durose said the possibility of inflation could touch off a chain reaction that would benefit gold companies. "If you look forward, the implications may be that there's some inflation coming," he said. "Then maybe that means the dollar is overbought and could roll over. You roll over the dollar, that's good for the price of gold. Gold moves higher -- that's good for gold equities."
Some investors dip into gold stocks to diversify their portfolios against volatility in the general stock market. There has been low volume on both the
New York Stock Exchange and the
Nasdaq Stock Market the past few days and that tends to increase volatility. More investors were turning to an old standby. "If you own some gold stocks, you're trying to lower volatility," Durose said.
He expects gold prices to stay strong for a while. "Gold mining production has peaked," he said, mentioning that gold mines are not being expanded, new projects are being differed and spending for gold exploration has been cut.
Many of gold companies have low share prices, so small changes in their price can result in large percentage moves. Here's a quick roundup of today's winners.