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Gold Prices Struggle with Stronger Dollar

NEW YORK ( TheStreet ) -- Gold prices flat lined Thursday as a rally in the U.S. dollar weighed on prices and as investors remained jittery ahead of Friday's jobs number.

Gold for December delivery closed down $2.60 at $1,829.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,833.60 and as low as $1,815.15 while the spot gold price was up $5, according to Kitco's gold index.

Silver prices lost 23 cents to closed at $41.53 an ounce. The U.S. dollar index was up 0.44% at $74.47.

The U.S. dollar staged a mini rally and weighed on gold prices as the commodity became more expensive to buy in other currencies. The dollar as well as U.S. bonds were benefiting from a slight rush to safety as investors avoided stocks and took profits in gold.

Adam Grimes, director of tactical investments at Waverly, says there is no good fundamental reason why the dollar is higher but that it could be technical trading. "We've been short the dollar since December and we reversed that short yesterday," meaning that he bought the dollar to unwind the trade. If other traders follow suit, the dollar could see a short term pop.

The big wild card for gold prices is the U.S. August jobs number that comes out Friday. If the jobs number is good, risk appetite may return leading investors to buy stocks instead of gold. But a better jobs number might also give the Federal Reserve less impetus to launch another round of quantitative easing, a hotly debated topic which is on the table for the two-day September meeting.

Any attempt by the Fed to pump more money into the system is typically good for gold as investors, worried about subsequent inflation, buy gold as a hedge. Rallies can sometimes be tempered though if investors look towards stocks, the biggest beneficiary of more quantitative easing.

If the jobs number Friday is disappointing, meaning that the private sector adds less than 100,000 jobs, the Fed can add that to the slew of negative data to support its case for more stimulus. The problem is that recent data has been so mixed -- factory orders and Chicago's purchasing managers index, for example, were all better than expected while the Dallas Fed manufacturing index contracted sharply and weekly jobless claims continue to be high.

Confusion and uncertainty are hard for investors as they struggle to find safety but also value. Those looking to gold will take advantage of price dips to buy as those feeling better about the economy or just want to book gains will sell gold.

A problem for gold, says Grimes, is that its traditional role as a store of value has changed as more speculative money flowed into the market. As more "fast" money enters the market, gold could be subject to the same kind of volatility as the stock market. Both equities and gold could find themselves moving in the same direction at times.

There is "no good place to put your money," says Grimes speculating that many are opting for cash. "We're looking for a short in gold. I suspect we will get an entry today ... the next leg is down." Grimes along with many other chart watchers are looking for a retest of the $1,650 level. There has also been a pattern with the gold price where it has sold off overnight to then climb back into positive territory throughout the day, Grimes says that if that pattern is broken it's an "ominous signs for the longs." That pattern appeared intact Thursday.

A pullback could be a big buying opportunity for some investors. "History says you buy all the pullbacks," says David Banister, chief investment strategist at, who warns of extreme volatility between now and the end of October. "I would expect after this counter trend bounce ... [gold will] come down and retest the low $1,700s."

Banister also says that a potential headwind for gold is the stock market. If the S&P bottomed in August and is now in a long term uptrend, perhaps supported by a QE3, then investors will opt for stocks. "People won't be as excited about gold."

Gold mining stocks were tentatively higher Thursday. Kinross Gold (KGC) was up 0.58% to $17.39 while Yamana Gold (AUY) added 2.21% at $16.16. Other gold stocks, Agnico-Eagle (AEM) and Eldorado Gold (EGO) were trading slightly higher at $70.09 and $20.63, respectively.

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-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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