Investors recall the rip-snorting rallies in gold and gold funds in the last two years.
But the current buzz about a stock market rally has obscured the fact that gold remains a good bet this year.
The price of gold rose Wednesday, reflecting Mideast tensions. Gold futures for December delivery rose $4 an ounce, to $367. Gains in gold-mining shares boosted stock indexes in Canada.
Gold has rallied in August, despite a recovery of strength in the dollar. Normally the two move in opposite directions.
Economic weakness in France, which on Wednesday posted a bigger-than-expected drop in total output in the second quarter, put downward pressure on the value of the euro against the dollar.
But the rise in gold reflects a persistent preference by many global investors for commodities as a store of value in troubled times.
The Reuters CRB index of commodity prices jumped before the invasion of Iraq.
Gold futures reached a 6 1/2-year high, $379 an ounce, in February. But gold, oil and other commodities fell after the occupation of Iraq succeeded.
Nonetheless, the CRB index stands nearly 10 percent higher than its level one year ago, beating the nearly 9 percent total return (with dividends reinvested) on the Standard & Poor’s 500 stocks in the same 12-month period.
With the Dow Jones industrial average at a 14-month high, it’s worth remembering that if you held gold-mining stocks for the last three years, you’d be way ahead.
What’s more, gold stocks and gold-oriented mutual funds are holding their own this year, as the general stock market attempts to rally from a three-year sell-off.
In July, mutual funds investing in gold-related securities outperformed all fund categories except funds invested in small-cap growth stocks and Pacific region stocks.
The American Century Global Gold Fund is up 15 percent this year and boasts an average annual return or 35.6 percent over the last three years, according to Morningstar.
The Vanguard 500 Index, an index fund that tracks the S&P 500 stocks, also is up 15 percent this year, but it suffered an average annual loss of 11.2 percent over the last three years.
Given the neck-and-neck performance of stocks versus gold this year, investors face a tough choice. The breakdown of U.S. ambitions in Iraq and Israel are making that choice a lot easier for some.
Wednesday’s action: Stocks and bonds marked time in quiet summertime trading.
Tuesday’s bombings in Iraq and Israel, as well as doubts about the strength of corporate profits and the economic recovery, are keeping investors on the sidelines.
The Dow Jones industrial average fell 31.39 points, to 9397.51.
Hewlett-Packard was the big loser among the 30 Dow industrials. Shares fell $2.31, or more than 10 percent, to $19.80, after the computer-maker posted weak results late Tuesday.
On the upside, Dow component Merck gained $1.28, to $52.12, after shares of its pharmacy benefit manager, Medco Health Solutions, began trading as an independent company. Medco shares closed up $1.37, to $25.22.
The S&P 500 index slipped 2.05, to 1000.30, but held above the psychologically important 1000 mark for the second day in a row.
The Nasdaq composite index edged down 0.57, to 1760.54; the Russell 2000 index of small-company stocks rose 0.76, to 489.46.
New York Stock Exchange trading volume reached 1.20 billion shares. Nasdaq trading volume totaled 1.48 billion shares. Winners held a narrow lead over losers among NYSE and Nasdaq stocks.
Treasury securities closed lower, sending interest rates higher. In an interview on CNBC, Alfred Broaddus, president of the Federal Reserve Bank of Richmond, played down Fed fears of deflation and said the economy could expand at a healthy 4 percent annual rate through 2004.
Oil prices closed higher in New York futures trading. September crude oil rose 25 cents a barrel, to $30.95.
Economists expected Thursday’s weekly report on initial claims for jobless benefits to show a slight decrease. The monthly report on business conditions in the Philadelphia region, also due Thursday, is forecast to post a slight gain.
