Gold Prices Settle Higher Despite Stronger Dollar

NEW YORK (TheStreet ) -- Gold prices were volatile Monday on the back of a stronger U.S. dollar and as investors digested an official bailout of Ireland .

Gold for February delivery settled up $3.20 to $1367.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,370 and as low as $1,354.50 during Monday's session.

The U.S. dollar index was adding 0.66% to $80.92 while the euro fell 1.11% to $1.30 vs. the dollar. The spot gold price was adding $1.30, according to Kitco's gold index.

Gold prices stayed in a modest trading range for most of Monday as a stronger dollar tempered gains but technical buying supported prices.

"Tomorrow will be still volatile," says George Gero, vice president at RBC Capital Markets, "due to all the Euro headlines ... Korea and strong dollar."

Despite the European Union's attempts to curb the selloff in the euro, investors were still dumping the currency on worries that $113 billion aid package to Ireland might not be able to prevent contagion to Portugal, Spain and Italy. The EU announced new bailout conditions starting in 2013 with more money and revised terms, which could leave bondholders on the hook, to pave the way for bigger financial aid needs.

The euro has sunk 4.4% vs. the dollar in the past week as investors rotated into the perceived safety of the U.S. dollar. A stronger dollar has put modest pressure on gold prices as the dollar-backed commodity becomes more expensive to buy in other currencies. A stronger currency also means it takes less dollars to buy an ounce of gold, pushing the value of the metal down.

"We think there is the risk of further corrections over the next few weeks," says James Moore, analyst at thebulliondesk.com. "Gold, while vulnerable, should remain cushioned by safe-haven demand as geopolitical, debt default and inflation concerns continue to prompt investor diversification."

In the short term, gold must contend with book-squaring and profit-taking headed into the end of the year. Some portfolio managers will want to sell gold to show gains to take advantage of the metal's 27% rally this year, using gold's intra-day high of $1,424 an ounce. On the flip side, money managers could also pile into gold to show clients they own the metal.

The tug of war on gold will mostly likely lead to increased volatility, especially as traders are forced to either roll over their gold contracts or let them expire before Dec. 1. The gold exchange-traded fund, SPDR Gold Shares (GLD), currently has 1,285 tons, which has remained unchanged for the last week.

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