Futures for February delivery jumped 2.1 percent to settle at $1,700.10 today on the Comex in New York. That's the highest closing price since Dec. 9.
Traders anticipate that gold will gain at a steadier pace again, after last year's correction. The metal's three-month implied volatility, a gauge for future price swings, touched 19.04 yesterday, the lowest since early August. The most widely held options contracts give holders the right buy at $2,000 by June, data from the Comex exchange show. The ratio of puts per call for the SPDR Gold Trust, the biggest bullion ETF, is near the lowest since October 2008.
Beating Gasoline
"People are still very under-invested in gold, and so there is a huge scope of that increasing," said Jochen Hitzfeld, the analyst at UniCredit SpA in Munich who was the most accurate precious-metals forecaster tracked by Bloomberg in the past two years.
Gold returned 1.1 percent in the 12 months through Jan. 24 when adjusted for price swings, compared with a 0.8 percent gain in unleaded gasoline, the second-best performer. Stocks, as measured by the S&P 500, returned 0.2 percent over 12 months risk-adjusted and 0.1 percent over five years.
Gold hasn't been shielded completely from market swings after investors accumulated more than 2,355 metric tons in exchange-traded funds backed by bullion, an amount valued at more than $126 billion, data compiled by Bloomberg show. Holdings have more than doubled in the past four years and climbed to an all-time high of 2,393 tons on Dec. 13.
'Not Immune'
Futures, which rose to a record of $1,923.70 in September on the Comex, slumped 11 percent the same month and retreated to a five-month low of $1,523.90 on Dec. 29 as investors sold the metal to cover losses in other markets. The risk-adjusted return in the fourth quarter was minus 0.1 percent, while crude oil, the best performer in the three months ended Dec. 31, returned 0.8 percent.
"Gold has become a mainstream alternative investment, so rather than a store of value, it's become a reflection of flows," said Michael Shaoul, chairman of New York-based Marketfield Asset Management, which manages $1.3 billion. "It is not immune to volatility."
Paulson, the hedge-fund manager who suffered the worst year of his career in 2011, lost 20 percent last month in his gold fund, which can buy derivatives and other gold-related securities, according to an investor update, a copy of which was obtained by Bloomberg News.
'Tempt Fate'
Most investors are sticking with the metal. David Einhorn's Greenlight Capital Inc. said in a Jan. 17 letter to investors that the fund continues to hold gold and gold-mining equities because of concern that global fiscal and monetary policies "tempt fate."