August 8, 2011 in Business, Nation/World

Markets tumble again; Dow down 635 points

Associated Press
 
Gold price tops $1,700
NEW YORK — The price of gold streaked past $1,700 an ounce for the first time Monday. Anxious investors sought safety in the metal as stocks tumbled around the world after the U.S. lost its AAA credit rating.


Gold’s allure stems in part from fears that the world’s major economies are dangerously indebted. Its value, unlike that of a currency, doesn’t hinge on whether countries can make their bond payments.

Standard & Poor’s on Friday cut the long-term credit rating for the U.S. by one notch to AA+, deepening investor fears about a weakening U.S. economy. The move may have been expected, but economists say its impact is still unclear, and the downgrade could hurt the economy. For example: Rates on mortgages could rise, further damaging the U.S. housing market.

Gold soared $61.40, or 3.7 percent, to settle at $1,713.20 on Monday. It reached a record high of $1,723.40 per ounce during the day.

Still, adjusted for inflation, an ounce of gold remains below its 1980 peak of $850, which translates into about $2,400 in today’s dollars.

NEW YORK — The U.S. stock market joined a sell-off around the world today in the first trading since Standard & Poor’s downgraded American debt and gave investors another reason to be anxious.

The Dow Jones industrial average fell 635 points, or 5.5 percent, to close at 10,810 points. It was the worst one-day loss for the index since December 2008.

The S&P 500 closed down 79, or 6.7 percent, at 1,119.46. The Nasdaq is down 174.72, or 6.9 percent, at 2,357.69.

More than 69 stocks fell for every one that rose on the New York Stock Exchange. Trading volume was heavy at 9.7 billion shares.

Today was the first chance for global investors to respond to S&P’s announcement late Friday that it was reducing its credit rating for long-term U.S. government debt by one notch, from AAA, the highest rating, to AA+.

The move wasn’t a total surprise but came when investors were already feeling nervous about a weak U.S. economy, European debt problems and Japan’s recovery from its March earthquake.

Fresh memories of the financial crisis three years ago are also driving investors away from risky investments and into what’s considered safer.

“Fear of a repeat of 2008 is what’s really driving investments,” said Gary Schlossberg, senior economist with Wells Capital Management.

Stock markets in Asia began the global rout. The main stock index fell almost 4 percent in South Korea and more than 2 percent in Japan. European markets opened later and fell, too, with Germany down 4.4 percent and France 4 percent.

Gold, which investors traditionally buy when they want a safe investment, rose more than $60 per ounce, to $1,712. Today was the first time gold was above $1,700 although after adjusting for inflation, its price remains below its 1980 record.

Prices for U.S. government debt rose — even after S&P essentially said they were a riskier investment than the debt of some other major world economies — because Treasurys are still seen as one of the world’s few safe havens. Prices rise as demand increases.

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