Risk this - give me a safe haven!

Investors pour money into the perceived safety of gold and bonds, as stocks lose their luster on continued bank woes.

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By David Goldman, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Wall Street is in a crisis: Home values are plummeting, stocks are tanking, banks are flailing and investors are panicking.

The panic hasn't quite reached the money-under-the-mattress level, but jittery investors are pulling their money out of stocks and pouring it into perceived safe-havens like gold, oil and short-term Treasury bonds.

And that's a trend that appears to be gaining popularity, at least in the near term.

"People are so scared right now," said Bill Stone, chief investment strategist at PNC Wealth Management. "They're looking for the next thing to blow up."

But before you start burying gold bars in your backyard and pouring all of your money into short-term government debt, experts say you should think twice. Bear markets are a natural - and some would say necessary - phenomenon that always eventually results in a rebound.

"The more things go down, the better future returns will be in the long term," Stone said. "If your eventual goal is building wealth that outpaces inflation, odds are in your favor if you invest in stocks, even though that's taking longer now than we would have liked."

The recent market turmoil is ugly, it's getting uglier and it may be far from over. Still, economists believe this too shall pass.

"The market is testing people, because this thing has obviously gone on longer than expected," said Stone. "But every other time the experts thought it was the end [of the world], it wasn't - the optimists have always won."

Market churn

The week isn't yet over, and investors have already seen storied investment bank Lehman Brothers (LEH, Fortune 500) collapse into bankruptcy, Merrill Lynch (MER, Fortune 500) sell itself to Bank of America (BAC, Fortune 500) and AIG (AIG, Fortune 500) get bailed out by the Federal Reserve. And talk of a buyout of Washington Mutual (WAMU) is continuing to circulate around trading floors Thursday.

As a result, the Dow has lost more than 4% over the past four sessions, with the blue-chip index falling nearly 400 points since Friday.

In that same span, gold and silver prices have both jumped 20%. Gold rallied $70 Wednesday - the largest one-day gain in the precious metal's history. Gold continued its upward climb Thursday, briefly stepping above $900 an ounce for the first time since Aug. 4.

"Gold always rallies in times of extreme stress because of the 'bunker mentality,'" Stone said. "It's an indication of fear - people like having something solid to hold onto."

Because most of the buying is erratic and fear-driven, most other commodity prices have not risen dramatically this week. Oil jumped $6 Wednesday and 72 cents Thursday, but those rises followed a more than $10 drop on Monday and Tuesday. And other commodities like corn, wheat and soybeans have fallen this week.

"Investors tend to use commodities as a hedge against inflation, but right now, this is just extreme panic," Stone said.


Since the latest round of Wall Street bankruptcies and bailouts, the yield on the benchmark 10-year Treasury bond had briefly fallen to a 5-year low of 3.25%, while the yield on the 3-month Treasury bill fell to 0.02% for the first time since January 1940. Bond prices and yields move in opposite directions.

By comparison, the yield on the 10-year note was 3.72% last Friday, and the 3-month bill was 1.48%. But that's not swaying investors.

"Right now, people do not care about the return on their money," Stone said. "People are shaken so hard now, they just care about getting their money back."

Bonds bucked the trend and fell Thursday as stocks took a break from their free fall to rally more than 400 points. The benchmark 10-year note dropped 1 1/32 to 103 27/32, and its yield rose to 3.54% from 3.42% late Wednesday.

The yield on the three-month bill rose to 0.22% Thursday after holding near its 68-year low of 0.02% earlier in the session. Many investors consider the 3-month Treasury bond to be the safest investment available.

The 2-year note fell 8/32 to 101 5/32, and its yield rose to 1.77% from 1.64%. On Friday, the yield on the 2-year note stood at 2.22%.

The 30-year bond also fell, dropping 1 18/32 to 105 21/32, while its yield rose to 4.17% from 4.09%.  To top of page

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