Gold Prices Rally on Investor Panic

NEW YORK (TheStreet) --Gold priceswere rallying Wednesday as investors fled into the safe-haven asset asglobal stock markets slidand theDow Jones Industrial Averagefell below 10,000.

Gold for December delivery was adding $5.60 to $1,239 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,243 and as low as $1,230.90 on low volume. TheU.S. dollar indexwas rising 0.05% to $83.20 while the euro was rising 0.26% to $1.26 vs. the dollar. The spot gold price Wednesday was up $7, according to Kitco's gold index.

From Asia to Europe to the U.S. stocks were down, economic data was negative and growth worries persisted driving investors into gold. In Asia, the yen hit a 15-year high vs. the dollar which didn't bode well for the future of exports, which will now be more expensive to buy in other currencies. In Europe,Standard & Poor'sdowngraded Ireland's credit rating to AA- with a negative outlook. In the U.S., existing-home sales plummeted more than 27% to the lowest level in 10 years as the government's new homebuyer tax credit expired, and durable goods orders slipped in July.

Gold rallied 0.5% Tuesday as spooked investors sold stocks for gold. The trend is set to continue Wednesdayas new-home sales in July fell 12%furthering fears of a double dip in the housing sector. Volume is also thin which will keep prices volatile and gold will look to theFederal Reserve'stwo-day meeting with world bankers in Wyoming, which begins Friday, for any signs of additional monetary easing.

"Every time the Fed has said something it's had a negative effect on general markets," says George Gero, vice president of global futures at RBC Capital Markets, which would spark a flight to safety into gold. For a short-term trade range, Gero is looking at "$1,175 as a bottom support, $1,250 for basically a real resistance level ... but the inside markets looks to me like its $1,200-$1,225."

Also adding fuel to the gold bull fire was the second quarter Gold Demand Trend report from the World Gold Council which said gold demand grew 36%. Overall demand was helped by a 118% surge in identifiable investment demand which offset a 5% decline in jewelry demand.

Video: Gold Buying Pops, But Can It Last? >>

Gold exchange-traded fund demand grew 414% to 291.3 tons primarily in May and June as the sovereign debt crisis in Europe exploded. The most popular gold ETF,SPDR Gold Shares(GLD), now the second largest ETF in the world, holds 1,298 tons. Shares closed Tuesday at $120.36.

Link to article