Gold Prices Drop on Profit-Taking

NEW YORK (TheStreet ) -- Gold prices fell Friday as the U.S. dollar gained strength and investors took profits heading into the weekend.

Gold for December delivery closed down $6.60 to $1,228.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,235.60 and as low as $1,223.60 during Friday's session. The U.S. dollar index was rallying 0.72% to $83.05 while the euro was down 0.89% to $1.27 vs. the dollar. The spot gold price Friday slipped $5, according to Kitco's gold index.

Gold prices took a breather after rallying 1.5% this week but still managed to close near the $1,230 resistance area. The popular gold exchange-traded fund, SPDR Gold Shares(GLD), added almost 5 tons Thursday -- 13 tons for the week -- as investors piled into gold.

Investors took advantage of gold's recent rally on Friday to raise cash and cover losses in stocks, which continued to slump amid a dearth of new economic data.

The Dow Jones Industrial Average closed down 144 points on Thursday erasing gains for the week. The sell-off was triggered by a rise in weekly jobless claims and indications of weak manufacturing activity in the Philadelphia region, and investors continued to fixate on those developments in Friday's session, sending stocks lower once again. In addition, JPMorgan revised its third quarter U.S. GDP forecast down to 1.5% from 2.5% on Friday. Although a general malaise in the equity markets is good for gold's long-term prospects, the yellow metal could still be in for a bumpy ride.

"There's still overhead resistance around $1,242, $1,245," says Jon Nadler, senior analyst at Kitco.com. "I think there is a lot of conflicting sentiment out there."

Nadler says that Goldman Sachs' recent bullish gold forecast of $1,300 is in sharp contrast to the word coming out of its private wealth group, which is telling high net worth clients to bail out of gold, he says.

"If you have about $100-$125 potential upside in gold, you have to weigh that against a potential $200-$250 downside risk at the moment," Nadler says.

A stronger dollar also weighed on gold prices . Investors have been buying other safe havens like the U.S. currency and Treasury bonds. The dollar and gold typically trade in inverse correlation to each other, although that trend can be bucked in times of severe market turmoil.

Silver Will Suffer With Stocks

Gold investors, however, are very sensitive to negative headline news and any bad data or more signs that the U.S. economy is slowing could trigger another wave of safe-haven buying. Also, recent price dips in gold have been met with bargain hunting as traders look to buy gold at "discount" prices.