Gold's attraction as an asset of refuge during crises losing shine?

The price of gold, which has climbed foryears like a blood pressure reading for anxious investors, plunged on Wednesdayto its lowest level in three months.

Gold fell almost $58 to $1,614 per ounce. It has declined 15per cent since September, when it hit a peak of $1,907. It had more thandoubled since the financial crisis three years earlier.

Surprisingly, the fall came on an ugly day in the stockmarket - the Dow Jones industrial average lost 125 points. Last year, a daylike Wednesday would have caused fearful investors to buy gold as a protectiveinvestment.

"It's difficult to forecast, but I think the gold bullmarket is over," said Cetin Ciner, a professor of finance at theUniversity of North Carolina-Wilmington. He likened the surge in gold todot-com stocks before they collapsed.

Some investors buy gold as a hedge against inflation, andminutes from a Federal Reserve meeting that came out Tuesday afternoonsuggested that the central bank believes inflation remains under control.

Gold's attraction as an asset of refuge during crises alsoseems to have diminished. The economy has picked up, and worst-case scenariosin the United States and Europe have faded.

"Fear has been gold's best friend, and so to the extentthat fear is dissipating, gold should fall," said Jim Paulsen, chiefinvestment strategist at Wells Capital Management. "We might look back atthese Fed minutes as the line in the sand."

Gold has been hit in recent weeks by striking gold sellers in India,the world's largest buyer of physical gold, who are upset over governmenttariffs. Another bearish sign was a surge on Wednesday in the dollar, whichtends to rise when gold falls.

Gold fetched only $300 to $400 an ounce during the 1990s butclimbed steadily last decade. By late 2008, it was near $900. It took off thatfall when prices for stocks and corporate bonds plunged, wiping out years ofsavings. Even money market funds looked suspect. Investors bid up prices forthe safest of assets, like U.S. Treasury bonds. Others turned to gold.

"During our bout with Armageddon, people ran to it forsafety," said Abraham Bailin, a commodity analyst at Morningstar. "Itmight sound silly now, but that's where it started."

Demand for gold also surged as the Federal Reserve boughtbonds, starting in the spring of 2009, to push down borrowing costs andstimulate the economy, a move known as quantitative easing.

The Fed's efforts to pump money into the banking system andavert a deep recession led to fears of runaway inflation, a concern shared byboth the tea party and big-shot investors.

Buying gold soon became a political statement. For those whodidn't trust financial institutions or were wary of the government, it was theinvestment of choice. The television personality Glenn Beck advised viewers tostock up on gold bars.

"Gold became a symbol of your political leanings,"Bailin said. "It became a way to speculate on the solvency of theeconomy."

Or perhaps to speculate that the price would continue torise, whatever the reason. Some analysts, like Ciner and Wells Fargo's Paulsen,said that as the price climbed ever higher, everyday investors may have beentrying to catch the wave.

Gold was named the "best investment" in a quarterlysurvey of investors released last month, topping real estate and stocks by awide margin. Nearly half of those surveyed considered it a bad time to buystocks.

One popular vehicle for buying gold, the SPDR Gold Trust, afund that trades on the open market like a stock, has attracted hundreds ofmillions of dollars of investor money each month since its launch in 2004.

It now holds $67.3 billion worth of gold. That makes it thelargest ETF except for the SPDR S&P 500, which tracks stocks, according toMorningstar's Bailin.

Ciner noted that the price of gold dropped on Wednesdaydespite news that Spainhad to offer unexpectedly high interest rates to attract investors to buy newgovernment bonds. That suggested that a solution to the European debt troublesis far from over - normally a trigger for buying gold, not selling it.

"It's pretty obvious that gold's character hascompletely changed," Ciner said. "If it was a real safe-haven asset,you would have expected investors to flock to gold."

Bulls pointed out that gold's popularity reflects awidespread skepticism of the financial system and of national currencies - andthat investors are fools to feel confident about them.

John Manley, chief equity strategist for Wells FargoAdvantage Funds, said that gold's role as a sort of fourth currency to thethree big ones - the dollar, euro and yen - is unlikely to diminish because ofthose currencies' troubles. Those include the USdebt, Japan'saging population and dissent among European countries about how to solve thedebt problem there.

Nicholas Colas, chief market strategist at ConvergEx Group,said he thinks gold's popularity reflects the anxiety of our age. The price maychange, he said, but an ounce of gold is always bound to be worth something.Old stock certificates, he said, may wind up worth no more than toilet paper.

"The gold rush isn't over," he said. "It'sjust on pause."