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Gold frenzy won't stop: $1,120 an ounce

Henny Ray Abrams, Associated Press

Anthony Iannelli of Iannelli Diamonds shows off some of the gold pieces for sale in his store on 47th Street in New York City’s diamond district Wednesday. The price of the precious metal is soaring, reaching $1,120 an ounce in Hong Kong early today

By DAVE CARPENTER, A ssociated Press

Last update: November 11, 2009 - 8:31 PM

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CHICAGO - The new gold rush is on.

The price of the precious metal is soaring, closing at a record $1,114.60 an ounce in New York Wednesday before reaching $1,120.80 in Far Eastern trading early today -- confounding market analysts who thought there was no way gold would remain so expensive when it first cracked the $1,000 mark last year.

The remarkable run has implications far beyond savvy investors. In New York's diamond district, more people started showing up late last year to sell their gold, and the crush hasn't let up, said Anthony Iannelli, owner of Iannelli Diamonds.

"They're bringing in jewelry from the '70s and '80s they don't wear anymore," he said. "They're following the news and see prices are high. They realize they have a little cache, and want to take it out of the vault."

Typically, gold is a safe place for investors to park their money, not something they buy to make money. It doesn't earn any interest, and because it's always sought-after, its value tends to be fairly stable.

For example, when gold first reached $1,000 it was in March 2008, shortly after the collapse of investment bank Bear Stearns. Investors drove up the price then because they feared for the stability of the financial system.

This latest surge is different: Investors are buying gold to protect themselves against the falling value of the dollar. Currencies are weak investments around the world because of record-low interest rates.

The surge has been remarkable. Gold is up 7 percent just this month, and 26 percent for the year. Some forecasters see it going to $1,200, $1,500 or beyond -- unless the buying frenzy begins to ebb.

Some analysts are panning the gold speculation.

"You just don't see increases like this over the short term" that last, says Steve Condon, director of investor advisory services for Truepoint Capital in Cincinnati. "This isn't materially different from gambling."

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