Volatility in the financial markets continued Tuesday, as the Dow Jones Industrial Average rebounded with a 485-point gain, a day after enduring a historic 777-point drop.
The Dow’s third-highest single-day gain happened amid growing expectations that lawmakers will salvage a $700 billion rescue plan for the financial sector, which was defeated in a House vote Monday.
“The consensus is they have to do something to free up the credit markets,” said Addison Wiggin, executive publisher of Agora Financial, an investment research firm based in Baltimore. “Without it, the market will be in shambles until they do something.”
Tuesday’s recovery in stocks wasn’t unexpected as carnage on Wall Street often attracts bargain hunters, though questions remain about how investors will proceed.
The same can be said for commodities like gold and silver, which traded lower Tuesday as the U.S. dollar’s value rose.
Though gold futures traded as high as $932 an ounce Monday, gold for December delivery ended Tuesday down $13.60, or 1.5 percent, at $880.80 an ounce on the New York Mercantile Exchange. December silver fell 75 cents to $12.28 an ounce Tuesday on fears industrial demand is decreasing.
Precious metals are viewed as one of the more popular investments during a financial crisis because they act as a hedge against the dollar and are protected from the financial sector.
But as John Wasik, a financial columnist for Bloomberg and author of “iMoney” pointed out, even gold has had its ups and downs this year. Gold ended September up 5.5 percent, but it was down 6.1 percent in the third quarter of the year.
“As a volatile commodity, investing in gold isn’t for sissies,” Wasik said.
“After the spot price reached a record this year of almost $1,000 an ounce, it fell to $736 on Sept. 11. Then it gained more than $100 an ounce during the week ended Sept. 19,” Wasik said. “You need a strong stomach to buy something that fluctuates more than $200 in price in a short period of time.”
Wiggin, though, expects any government bailout of the financial sector to place downward pressure on the dollar, meaning more investors could lean on metals.
“The long-term prognosis is definitely bad for the dollar,” Wiggin said. “When there’s a lot of uncertainty in the market, precious metals are generally a good place to put your money.”
The Nasdaq Composite Index closed Tuesday up 98.6 points, or about 5 percent, while the Standard & Poor’s 500 Index closed up 58.3 points, or 5.3 percent.
The Associated Press contributed to this report.
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