Nervous investors turn back to gold; price nears $900

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Gold may be reclaiming its position as investors’ favorite haven in troubled times.

The metal surged $37.10, to $895.30 an ounce, in New York futures trading today, the highest closing price since early October. The price has jumped $88 just in the last five sessions.

Amid the economy’s slide in November and December, many investors’ first choice for a hiding place was government bonds, including U.S. Treasuries.

But the bloom is off that rose: As the Treasury ramps up for record borrowing this year to fund rescues of the financial system and the broader economy, more investors are balking at government securities.

The yield on the 30-year Treasury bond has risen to 3.32% today, up from 3.25% on Thursday and the highest since Nov. 28. In mid-December the yield hit a record low of 2.52%.

‘The market is fearing an oversupply of bonds,’ said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.

What’s more, he notes, rock-bottom U.S. short-term interest rates and plans for massive government spending (not just in the U.S., but worldwide) run the risk of fueling inflation down the road. That concern, too, is burnishing gold’s appeal.

The $900-an-ounce level could be a key threshold for gold: It briefly topped that mark in mid-September and again in early October, only to quickly sell off.

‘I think this time it’s got a little more gusto,’ Zeman said of the current rally.

One sign of that: Gold has jumped over the last week even as the dollar has remained strong. Normally, dollar strength is bad for gold because the two compete directly for traders’ attention, and cash.

Gold’s gains also are stoking buying of mining companies’ shares: The average gold-stock mutual fund jumped 5.6% in the week ended Thursday, while the average U.S. stock fund fell 2.3%, according to Lipper data. Among miners, check out Newmont Mining and Barrick Gold today.

-- Tom Petruno