Gold Prices Settle Higher

"Overall, the key driver of gold is going to be the sovereign risk issue and whether we are moving towards slower economic growth on sort of a 6-12 month view and I think the jury is still out on that."

The most popular gold ETF, SPDR Gold Shares(GLD), also added 10 tons in the past week bringing total tonnage close to 1,300. The GLD saw $7.7 billion of inflows in the first half of 2010 and is now the second largest ETF in the world.

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Some potential variables for gold are U.S. dollar strength and headline risk. If the U.S. dollar stages a mid-August rally, gold prices could suffer as the dollar-backed commodity becomes more expensive to buy in other currencies. On the flip side, because trading volume is so thin any news, either negative or positive, could cause a rush into or out of gold leading to greater volatility.

Silver prices closed 7 cents lower at $18.32 while copper settled down 3 cents to $3.31.

Gold's steady rise in the past week is not only good for future prices but also good for gold stocks. Holmes says as gold moves 2.5% in September "gold miners [can] make an 8.3% leap in September. In September 2009, the jump was 14.5%."

The Market Vectors Gold Miners ETF(GDX ), a basket of large gold miners, has risen 3.6% since June 1 while gold prices are relatively flat. Shares were slightly lower on Thursday at $51.77.

Gold mining stocks, a risky but profitable way to buy gold, were mixed. Yamana Gold(AUY) was down 1.06% to $10.22 while AngloGold Ashanti(NEM) was relatively unchanged at $44.11. Other gold stocks Kinross Gold(KGC) and Freeport McMoran Copper & Gold(FCX) were trading at $15.62 and $72.27, respectively.

--Written by Alix Steel in New York.

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