IAU: Can Spot Gold Continue Its Tear?

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Gold's steep six-month rally, interrupted by only a few slight pullbacks, sent iShares Comex Gold Trust (IAU) to the top position of the ETF Momentum Tracker sector ranking.

The value of an ounce of gold began climbing last September and hasn't stopped as of late February. Gold futures hit a new all-time high of $952 per ounce last week, up from about $840 at the start of 2008. Gold's steep six-month rally interrupted by only a few slight pullbacks sent iShares Comex Gold Trust (IAU) to the top position of the ETF Momentum Tracker sector ranking.

It's no coincidence that gold caught fire around the same time the broader stock market began sinking. Gold often increases in value during economic downturns and periods of high inflation. There's been no shortage in recent months of signs that the economy could be in the midst of a recession, or at least a severe slowdown. Meanwhile, unprecedented oil prices and the Fed's recent slashing of interest rates have increased worries about inflation. These concerns spurred investors who view gold as a safe haven to bid up prices of the metal. IAU gained more than 40% since September 1, while the S&P 500 fell nearly 6%.

Unlike many funds focusing on precious metals, IAU invests directly in gold rather than in stocks of mining companies. Each share of IAU represents one-tenth of an ounce of gold, meaning that if gold futures are trading at $1,000 an ounce, a level they may soon reach,one share of IAU would trade for about $100, minus the fund's 0.40% expense ratio.

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