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Gold Prices Settle Down on Profit Taking

Stocks in this article: AUY

NEW YORK ( TheStreet ) -- Gold prices lost steam Friday as investors took profits headed into the weekend.

Gold for April delivery settled down $8.70 to $1,426.20 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,438.10 and as low as $1,422 while the spot price was shedding $2.70, according to Kitco's gold index.

Silver prices lost 32 cents to settled at $37.04 an ounce.

Gold and silver were pulled between those investors seeking protection headed into the weekend and those who took profits after the metals' rally this week. But the latter won out and gold turned sharply lower before markets closed.

Both metals should brace for volatility over the next week. The CME announced Thursday that the amount of money to either buy or short a 5,000-ounce silver contract will rise 5.4% to $11,745, which could cause some anxiety among traders and force them to alter some positions. When silver is hit with a margin requirement, the worry is that gold could be next.

George Gero, senior vice president at RBC Capital Markets, doesn't think the requirement will affect the silver market because buying silver exchange traded funds come with an even bigger margin.

"An ETF you have to put up at least 50% margin or full money if you're buying it in a tax sheltered account or a retirement type account," argues Gero.

Another technical factor that will dominate precious metal trading is rebalancing. The first quarter wraps up Thursday and portfolio managers will be under the gun to prove they own certain stocks or commodities to then just ditch the position in the second quarter. Portfolio managers who have owned gold and silver might also be tempted to sell to take advantage of recent rallies.

Gold and silver were hit hard by this kind of trading in January. Both metals rallied 2.7% and 14%, respectively, in December as portfolio managers beefed up their precious metal holdings. But come January gold shed 6.6% and silver dropped 10%. Both have recouped their losses since then with gold hitting a record intraday high of $1,448.60 and silver hitting its own 31-year high of $38.18 an ounce.

Traders on the Comex also must decide if they should roll over their April contracts to June, sell, or let them expire, which creates a more volatile trading environment.

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