Gold not usual refuge in financial crisis

NEW YORK — Buying gold as a hedge against economic woes hasn't worked out as expected.

After briefly hitting $1,000 an ounce in March, gold has fallen into a rut and shows no sign of rising soon.

That's been punishing for investment portfolios. Since soaring to an all-time high of $1,033.39 an ounce on March 17, gold has plummeted 30 percent. Gold for December delivery on Monday rose $8.60 to settle at $726.80 — roughly the same level where it traded a year ago.

So what happened? As the financial crisis pummels financial markets around the globe, hedge funds and other large investors who drove gold to dizzying heights earlier this year are now racing to unwind those positions to raise cash and cover huge losses.

"Gold is being pulled down by indiscriminate selling of virtually every asset," said Jeffrey Nichols, managing director at New York-based American Precious Metals Advisors. "You could call it collateral damage."

Instead of gold, investors are pouring money into the newest safe-haven asset: cash. That has pushed the dollar to multiyear highs against the euro and the pound, hurting demand for gold among investors who buy the metal as a safe-haven against inflation.

With economists now warning that a world economic slowdown could bring about deflation, or a sustained period of falling prices, gold analysts say it's unclear how the metal will respond.

"Gold hasn't been tested in a true deflationary crisis, so we don't what will happen to prices," said Jon Nadler, precious metals analyst with Kitco Bullion Dealers Montreal.