Big gains seen for precious metals

Gold, silver, platinum and palladium may be the best-performing financial assets so far this year as inflation and slowing economic growth erode the value of bonds and stocks worldwide and many major currencies.

Precious metals have risen at least twice as fast as the euro and yen in 2008 and returned six to 20 times as much as U.S. Treasuries. Meanwhile, the Standard & Poor's 500 index and most other major gauges of world equities are down.

The spot price of gold hit a record of $983.70 an ounce Monday before falling yesterday to $963.60. That is up more than 15 percent from about $834 an ounce at the end of last year.

Silver is up about 17 percent this year, platinum has gained 50 percent to about $2,300 an ounce, and palladium is up 44 percent.

Platinum and palladium are sister metals used to make jewelry, catalytic converters for cars, and dental crowns and bridges.

Investors are using metals to preserve their buying power as the U.S. dollar falls to a record low and inflation accelerates.

Gold, platinum and palladium may gain at least 30 percent this year as Federal Reserve Chairman Ben S. Bernanke makes cutting interest rates a priority over controlling consumer prices, said Ron Goodis, a trader at Equidex Brokerage Group Inc., of Closter, N.J., who has been buying and selling gold since 1978.

"It is hard to see how the monetary environment is going to be anything but supportive of higher gold and commodity prices anytime this year," said Chip Hanlon of Delta Global Advisers Inc., of Huntington Beach, Calif. "If currencies don't carry a favorable interest over metals, then why not own gold or platinum?"

Most metals are traded in dollars, tying their prices to how much the currency buys in the world economy.

Gold is up 36 percent since Sept. 18, when Bernanke and the Federal Reserve made the first of five cuts to the interest rates to try to stave off a U.S. recession.

The U.S. Dollar Index, which tracks the currency against six major counterparts, is at its lowest since its start in 1973. Even gold traded in euros, yen and pounds reached records this year as consumer prices rose around the world, eroding the appeal of currencies as an asset.

"You can't find a currency that you trust as a store of value, so you create a new one," said Robert Fullem, vice president of U.S. corporate foreign-exchange sales at Bank of Tokyo Mitsubishi UFJ Ltd., of New York. "Safety ends up being a piece of metal. You can stick it under your bed, and sometimes that's your best bet."

But the rally in metals may be fleeting should some of the biggest holders sell or the dollar rebound.

An example: The United States, the largest shareholder of the International Monetary Fund, said Feb. 25 that it might allow the IMF to sell as many as 401 metric tons of gold to meet budget shortfalls.