Gold and gold stocks shine again on weaker US$
By DAVID THOMAS
Economics Reporter The Financial Post
Gold stocks surged yesterday, providing a single pocket of strength amid a growing bear market for most equities.
The gold and precious minerals index of the Toronto Stock Exchange jumped 8.7%, after bullion gained US$6.30 an ounce - it closed at US$290.70 on the Comex division of the New York Mercantile Exchange.
Analysts said the yellow metal, whose price bottomed out at US$274.60 Aug. 28, has regained some ground on the back of a weakening US$ and tumbling stock markets.
"The price of gold tends to do well in large selloffs or crashes," said Martin Murenbeeld, an independent gold analyst in Victoria.
Gold has failed to rally during other recent stock slumps, but this time weakness in the US$ helped propel the rebound.
The US$'s slide against many currencies - including the C$ yesterday - is widely attributed to the growing threat of impeachment facing U.S. President Bill Clinton.
Another factor driving gold higher, both yesterday and in the past week, is short covering by traders who have been profiting
from the metal's recent slide, said Murenbeeld.
Short sellers borrow securities or contracts and sell them with the intention of buying them at a lower price later and pocketing
the difference. When the price slide reverses, short coverers can give prices an extra boost as they rush in to close out their transactions.
After spending a brief time above US$300 in April and May, gold resumed its swoon in the summer, falling about US$20 from US$295 in mid-July to a 19-year low less than two weeks ago.
In a dramatic turn of events, gold shares have been the best place to be in recent weeks. Since the TSE 300 hit bottom on Aug. 31, the gold index has been the top-performing sector, soaring 34.6%. The TSE 300 has advanced 4.8% in the same time.
Bond markets, especially U.S. treasury bonds, have replaced gold as a haven for global investors during periods of volatility, but gold is making a bit of a comeback, said Dinsa Mehta, global head of commodity risk at Chase Manhattan Bank in New York.
"The global financial market firestorm is cutting a bit close to the bone and that's helping gold. Gold is cheap insurance in a lower-interest-rate environment," he told Bloomberg News.
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