Gold Prices Surge on Global Currency Action

NEW YORK (TheStreet ) -- Gold prices rallied into the close as a weak dollar and safe haven buying trumped better-than-expected second quarter growth numbers out of Japan and a slew of merger and acquisition news.

Gold for December delivery closed $15.40 higher at $1,758 an ounce at the Comex division of the New York Mercantile Exchange and was surging more than $23 in after-hours trading. The gold price has traded as high as $1,758.60 and as low as $1,730.80 while the spot gold price was adding $17.60, according to Kitco's gold index.

Silver prices settled up 19 cents to $39.30 an ounce. The U.S. dollar index was 1% lower at $73.85 while the euro was up 1.38% vs. the dollar.

Gold rallied into the close Monday as the U.S. dollar sank which made gold, a dollar backed commodity, cheaper to buy in other currencies. Gold was also helped by rumors that the Swiss government might peg the Swiss Franc to the euro.

The former, along with gold and the Japanese yen, are often sought after safe haven investments. If the Swiss take their currency out of the running and if the Japanese government continues to devalue the yen to help its export businesses, then then only safe haven left standing would be gold.

Gold had been initially struggling Monday as Japan's economy contracted 0.3% in the second quarter versus the 0.6% economists were expecting. Investors were taking no bad news as a sign to buy stocks, but consistent safe-haven buying prevented a selloff in gold.

Vote: Where will gold prices finish in 2011?

Monday also brought a slew of merger and acquisition news with Transocean(RIG) making a $1.4 billion bid for Aker Drilling and Google(GOOG) offering a 38% premium for Motorola Mobility(MMI), both of which added more juice to stocks.

"As financial markets calm, further corrections are likely for gold and silver," says Commerzbank in a recent note, but argues that the calm will not last unless the fundamental global picture turns positive fast.

James Moore, research analyst at FastMarkets, says that gold could correct to the low $1,700s or the $1,680 area if risk appetite continues, "but we expect the dip buying mentality to continue with gold remaining underpinned by investment demand."

Gold will be taking its cue from Europe this week as debate rages on how to stabilize debt ridden nations. Germany Chancellor Merkel and French President Sarkozy will meet Tuesday to discuss various options perhaps even selling Eurozone bonds - a move hated by most German leaders, as the country is already propping up the EU.

Expectations are high for the meeting as France continues to struggle as rumors swirl that it could lose its triple A credit rating and see its short term borrowing costs rise. Many experts argue that this continued uncertainty will only be good for gold as investors seek a safe haven.