|STEVE ROTHWELL, AP Markets Writer|
Gold is having a summer revival.
The price of gold touched
Gold has surged 15 percent since sinking to
Gold's resurgence follows a rough ride this year.
Gold slumped 4.8 percent in the first three months of 2013 as the outlook for the economy improved while inflation remained subdued.
For many years prior to that, large investors, like hedge funds, bought the metal as a way to protect their investments against rising prices and a slumping dollar. They feared that the Federal Reserve's stimulus program could cause prices to rise. But inflation remained subdued and that reduced the need to buy gold. Also, signs in January that the dollar was strengthening diminished the appeal of owning gold.
Then in April, the bottom fell out. A proposal that
Gold plunged by
While the price of gold is still down 17 percent this year, the metal is on the rise.
Here are the factors driving its comeback:
A LITTLE INSURANCE
One of the reasons people buy gold is that it offers an alternative to more traditional financial assets, says
As the stock market soared this year, rising as much as 20 percent, investors had less need to hold gold.
That has changed the last four weeks.
The Standard & Poor's 500 index has lost 4 percent since reaching an all-time high of 1,709.67 on
Investors want to add back a little insurance to their portfolios these days.
"If we lived in a perfect world, we would not need gold," says McGlone. "But since we don't, we do need something that is the ultimate store of value."
Investors don't need to buy gold bars or coins to invest in the metal.
Exchange-traded funds are investments that are similar to mutual funds. Both can be bought and sold on exchanges. Some of these funds, such as ETF's Physical Swiss Gold Shares and SPDR's Gold Shares, allow investors to buy into trusts that invest directly in gold.
HAVEN FROM STORMY CURRENCIES
The Fed appears close to reducing its
Now, that trend is reversing. U.S. interest rates have started to climb in anticipation of the Fed's reduced stimulus. Investors are selling their emerging-market holdings and converting the proceeds back into dollars.
The value of the Indian rupee against the dollar has plunged by more than 11 percent in August on concerns that surging oil prices are pushing the country toward an economic crisis. The Indonesian rupiah has also slumped.
When currency markets become volatile, investors worldwide look to invest in safe assets that will hold their value, says
"Gold does fit that role," he says.
Speculators like hedge funds were behind the surge in gold over the last decade. That sent gold to a peak of
When prices slumped this spring, though, those buyers jumped back in because people in those countries bought more gold.
Gold still remains far below its inflation-adjusted peak. It rose as high as
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