For many, gold has become a gleaming weapon against a triple threat. The threat — a weak dollar, screaming high oil prices and inflation fears — has investors nervous. Markets are all down as investors host a huge sell-off.
Gold, on the other hand, hit a 28-year-high last week. It reached $871.80 after the release of disappointing U.S. jobs data, not far from its record-high of $875 in 1980.
Part of the spike is psychological. The yellow metal has been seen as a hedge against tough times since man began mining it.
Unlike days of old, though, you don’t need a strongbox to hold your stash. There are eight exchange traded funds that track the gold market.
The largest is StreetTracks Gold Trust (NYSE:GLD - News). The 3-year-old fund, which tracks the London gold fixing and actually owns physical gold bullion, has more of the shiny stuff than the European Central Bank or China’s central bank.
Countries With Gold
In fact, just seven countries hold more gold than the $16.8 billion World Gold Council-sponsored ETF: the U.S., Germany, France, Italy, Switzerland, Japan and the Netherlands.
About 1/10 of an ounce of metal backs every share of the StreetTracks fund. The bullion is kept in London by HSBC Bank USA, a unit of HSBC Holdings PLC. As demand goes up, the fund buys more gold and issues more shares.
The fund gained 31% in 2007. About 8 million shares a day are traded, more even than Google (NasdaqGS:GOOG - News).
Another of the largest gold ETFs, iShares Comex Gold Trust (AMEX:IAU - News), also holds the physical bullion, although it tracks the Chicago commodity price. The nearly 3-year-old, $1.5 billion fund is quieter, but also had a 31% gain in 2007.
Price Swings
The demand for gold as jewelry has declined. But as a commodity, it’s molten. Gold was flat during much of the 1990s and early 2000s — it traded for less than $300 in 2001. Since the World Gold Council filed to sell gold in trust, the demand has moved steadily upward and prices have nearly tripled.
But “it’s when this demand dries up that gold investors should be worried,” Bespoke Investment Group analysts Paul Hickey and Justin Walters said Monday.
Like all commodities, gold remains volatile. Decreasing demand can hit the wallet hard. Investors who bought gold at its last peak in the 1980s — and held on to it — would only recently have recovered their losses.
When people stop being so scared, gold prices could drop. We saw that happen Monday: Gold dropped as low as $857.80 as the dollar regained some strength and oil prices also fell below $95.
If you can stand the risk, gold might indeed prove a haven, analysts said. Just be aware that if the dollar strengthens, it might not be the shiny solution you had hoped.