Is Gold Prospecting for a Comeback?

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Most investors focus on major stock indexes such as the Dow Jones Industrials , and the market's jump of 130 points by midday Monday reflected continued optimism for a slow but steady expansion in the U.S. economy. Yet with the March employment report on Friday suggesting somewhat slower growth than in recent months, some are looking beyond the Dow and other market benchmarks for opportunities to profit. Commodities roared ahead on Monday, with precious metals enjoying particularly sharp gains. As of noon EDT, gold was up 1.5% to $1,220 per ounce, while silver, platinum, and palladium were all up 2% to 3%. Given the commodities markets' difficulties in recent years, many investors wonder whether now's the time for a comeback.

Why gold is shining bright todayPrecious metals traditionally have a love-hate relationship with stock markets, as both reflect general economic conditions in different ways. The sluggish jobs report last week supported gold by raising the possibility that the Federal Reserve will wait longer before raising short-term interest rates. Low rates have a couple positive impacts on the price of gold: they generally hold back strength in the U.S. dollar, which tends to move inversely with precious-metals prices; and they make it cheaper for gold investors to finance their precious-metals purchases through borrowing. That's a similar response to what most stock investors have looked for from the Fed lately, and that explains why both markets are rising today.

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Yet a number of other factors also drive demand for the yellow metal. For instance, Greece has been working on managing debt owed to the International Monetary Fund and the European Union, and how those negotiations proceed tends to make its way into gold-trading activity. Signs that Greece will make a debt payment to the IMF have helped bolster the euro against the U.S. dollar, yet ongoing uncertainty about a broader renegotiation has made some European investors favor precious metals rather than the potentially unstable euro.

Finally, even stock market investors are looking for beaten-down areas in which to find bargains, and gold-mining stocks have been among the worst performers in recent years. Today's bounce of nearly 4% in the Market Vectors Gold Miners ETF in part reflects that search for fertile ground by value investors. As the industry has worked hard to determine how to survive at lower price levels, the opportunity for mining stocks to jump once commodities finally hit bottom is attractive to those looking for diversified exposure in their portfolios.

Gold remains well below its highs from a few years ago, and few investors expect the metal to rebound quickly to its old record levels. Nevertheless, the attention that gold and other commodities are getting today could suggest renewed interest that could in time lift the complex out of its doldrums.

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