Gold Regaining Its Glitter In Libyan Turmoil

In a matter of days, the long rally in U.S. stocks has stalled and investors are pouring their money back into gold, silver and oil. Stocks suffered huge losses Tuesday while the three commodities posted sharp gains.

In the first trading session since Friday, investors had a chance to digest the news coverage of the mounting anti-government protests in oil rich Libya and the regime's harsh crackdown. Long-time Libyan leader Moammar Gadhafi vowed to fight to the death, but rebels hold wide areas of the country.

Following the overthrows of the Egyptian and Tunisian governments, nervous investors are abandoning stocks and fleeing to safety. In days gone by, that might have meant moving to U.S. dollars. But, with bond prices at very high levels, more and more investors are loading up on precious metals.

Stocks take a dive

The Dow Jones industrial average lost more than 178 points Tuesday -- it's biggest one-day decline of 2011 -- while gold gained $12.50, closing at more than $1.401 an ounce -- a 7-week high.

Silver, meanwhile, is at its highest level in 31 years, gaining 1.8 percent to close at $32.86 an ounce.

The question is, where do gold and silver go from here? Analysts say that all depends on what happens in the Middle East -- which brings us to the price of oil.

Crude oil prices have surged in the last week, especially since the violence in Libya threatens to reduce or cut off oil supplies from that country. Libya is a member of OPEC and produces about two percent of the world's oil.

The price of West Texas Crude surged past $98 a barrel Tuesday, with the price of Brent crude even higher -- at $105. Traders bid up the price of futures contracts, despite the fact that supplies are fairly plentiful.

Is oil peaking?

At least one oil analyst thinks the higher oil prices won't last. In an interview with CNBC, Dennis Gartman of the Gartman Letter said $100 a barrel oil is not sustainable.

"We're going to have an awful lot of new crude coming at us, and we need to understand that," Gartman said.

That said, Gartman believes an interruption in the supply of Saudi Arabian oil would change everything. And perhaps it is the fear of that possibility prompting more investing in precious metals.

How high gold and silver will go in the future is an open question. David Banister, chief investment strategist at ActiveTradingPartners.com, expects silver will dramatically outperform gold over the next couple of years -- and could go as high as $45 an ounce.

Gold, meanwhile, has failed to exceed its record of $1,432.50 in three recent attempts, a negative sign according to analysts. Unless it can break through that barrier, they say it may be subject to profit taking, especially if the dollar gains a firmer footing.