Gold sets record highs as global stocks slide
Thu Feb 12, 2009 2:10pm EST
By Herbert Lash
NEW YORK (Reuters) - Widespread fears that U.S. efforts to revive the economy and stabilize banks may prove insufficient drove investors into safe havens like gold and bonds on Thursday, and pushed world stock markets lower.
More bleak economic data from Asia and Europe that pointed to deflation in Japan and record plunges in industrial production in the euro zone added to market unease sparked by the lack of details in U.S. rescue plans announced on Tuesday.
Concerns over the health of the global economy dragged U.S. oil futures to a three-week low below $35 a barrel and cut two-year yields on euro zone government debt to their lowest since the euro began circulating in 1999.
Safe haven buying marked trading across all asset classes, lifting the dollar higher against most currencies and pushing gold prices to new highs in Britain and India. A slide in equity markets also was a catalyst in the flight to safety.
"Risk aversion has returned to the market with full force," said Ole Hansen, senior manager with Saxo Bank in Copenhagen. "That makes people seek out safe havens, which is reflected not only in the inflows into gold but also the bonds market."
Gold priced in sterling and gold futures in India hit all-time highs, adding to record highs on Wednesday for bullion in euro, Canadian dollar and Swiss franc terms.
Sliding stock prices have helped bolster gold as investors move out of equities, a risky asset class, in favor of bullion, Hansen said.
Before 1 p.m., the Dow Jones industrial average .DJI was down 115.09 points, or 1.45 percent, at 7,824.44. The Standard & Poor's 500 Index .SPX was down 10.78 points, or 1.29 percent, at 822.96. The Nasdaq Composite Index .IXIC was down 4.40 points, or 0.29 percent, at 1,526.10.
Uncertainty about the economy fueled selling across a broad range of sectors in U.S. equity markets, including energy, which buckled as crude oil prices slid.
Sales at U.S. retailers rebounded in January, government data showed, likely boosted by post-holiday discounts. But economists said retail data are volatile and should not be taken as a sign that the decline in sales has bottomed.
U.S. jobless claims data also showed no signs of relief.
"No one believes the retail sales data and everyone fears the trend of initial jobless claims will just continue to rise and rise and put more and more pressure on the psyche of consumers, which is already pretty fragile," said Jeffrey Kleintop, chief market strategist at LPL Financial in Boston.
Financial shares also dragged on the broader market. The KBW Bank index .BKX fell almost 6 percent due to persistent worry about a lack of clarity over how the Obama administration will cleanse troubled assets from banks' books.
In Europe banks also were hit by doubts about the U.S. government's plan to rescue the financial system. Continued...