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Gold Prices Settle Lower; China Fights Inflation

Investors were somewhat calmed overnight as it became clear that Ireland would take a bailout from the European Union and International Monetary Fund.

The country had been resisting any financial aid to avoid the stringent rules that go along with it. The country will have to meet certain deficit-reduction targets in order to receive lump sums and there is speculation that the country might be forced to raise its corporate tax, which is now at 12.5%.

Although details of the package are still being figured out, uncertainty has ebbed for now, which is helping support the euro, weaken the dollar and provide a floor for gold prices.

"Once this consolidation completes, we are looking for a particularly strong bull run in gold stocks," says Vedant Mimani, managing director at Atyant Capital. Mimani said he is "'only' at 75% long exposure. We will deploy the remaining 25% ... as we work through this period [of consolidation]."

Volatility and consolidation however might be the name of the gold game for the end of 2010. Nadler says "year-end book squaring ... year-end window dressing ... will definitely continue surprising moves day after day." Fund managers will be under pressure to show they own gold in their clients' portfolio, considering the metal is up 20% year to date, while others will opt to show profits instead.

For the short term, gold futures could be even more volatile than the spot price as the Commodity Futures Trading Commission meets Friday to discuss regulations outlined in the Dodd-Frank Act. The CFTC will be debating position limits for physical commodity futures contracts and swaps.

Options expiration at the end of November will also add to the volatility of gold prices as traders either roll over their contracts or let them expire. Silver prices settled up 34 cents to $27.17 while copper was flat $3.83.

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Gold mining stocks, a risky but profitable way to buy gold, were rising. Freeport McMoRan Copper & Gold (FCX - Get Report) was up 1.88% to $101.73, while Kinross Gold (KGC - Get Report) was 0.45% higher at $17.88. Other gold stocks Iamgold (IAG - Get Report) and New Gold (NGD - Get Report) were trading at $17.16 and $8.94, respectively.

-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.
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