Gold Prices Plummeting on Thin Volume

NEW YORK (TheStreet) -- Gold prices were sinking Thursday as investors opted for cash at the start of the third quarter.

Gold for August delivery tumbled $39.20 to settle at $1,206.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Thursday has traded as high as $1,244.80 and as low as $1,205.60. The U.S. dollar index was losing 1.47% to $84.75 while the euro was rallying 2.05% to $1.249 vs. the dollar. The euro was buoyed by Spain's $4.3 billion bond sale despite Moody's downgrade of five Spanish regions. The spot gold price Thursday was plummeting $43, according to Kitco's gold index.

The start of the third quarter provided little cheer for investors as weak manufacturing data from China, weak initial jobless claims in the U.S. and disappointing pending home sales weighed on risk appetite. Gold wasn't the only victim, most assets were selling off as traders settled for cash and U.S. Treasuries. The yield on the 10-year note fell to 2.93%.

Top Gold Trade for Q3

"The euro is key," says Adam Klopfenstein, senior market strategist at Lind-Waldock. "The euro is getting more confidence behind it ... when you see the euro up ... a lot of the people that were buying gold off of the fears of the eurozone are dumping it." Klopfenstein thinks this trade will be short-lived and that a bleak global macro picture will increase gold's appeal as a safe haven asset. "I really think this is more indicative of a one event type of related selling."

Also the Dow Jones Industrial Average lost 10% in the second quarter while gold prices popped more than 11% leaving gold one of the only profitable assets. If investors need money to cover losses in stocks or just want cash, gold is one of the best places to do it.

Thinning volume before the long holiday weekend in the U.S. and continued book-squaring were supporting factors in gold's free-fall. Gold prices rallied slightly into the end of the second quarter as investors bought gold to show they owned the metal in the portfolio for the first half of the year. These investors can be fickle though as they are just as apt to sell these positions as the third quarter gets underway. Gold prices have also broken their critical support level of $1,225 an ounce which could be triggering some technical sell-stop orders.

"Gold trends generally lower during the third quarter," says James Moore, analyst at TheBullionDesk.com in his daily metals report. "[However,] given the current concerns over inflation, slowing economic recovery and European debt, the metal may look to extend higher as investors continue to diversify from fiat currencies."

Silver prices were losing 91 cents to $17.79 while copper was down 7 cents to $2.87.