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Gold Prices Tank as Investors Rush to Stocks

NEW YORK ( TheStreet ) -- Gold prices plunged Wednesday as investors piled into stocks for the first time this month.

Gold for December delivery plummeted $55.70 to settle at $1,817.60 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,883.20 and as low as $1,798.60, while the spot gold price was down $63, according to Kitco's gold index.

Silver prices shed 23 cents, bouncing back from a loss of more than $1, to close at $41.63 an ounce. The U.S. dollar index was down 0.54% at $75.48.

World markets rallied Wednesday as Germany's Constitutional Court ruled Eurozone bailouts legal, and management shakeups in Yahoo! (YHOO - Get Report) and Bank of America (BAC - Get Report) boosted investor risk appetite.

Gold prices also hit a record intraday high Tuesday of $1,923 an ounce, which prompted some investors to take profits. Prices have been extremely volatile of late, with $50 price swings, which may have shaken some speculative investors out of the market. Over in Asia, gold tanked $50 in 5 minutes with little explanation, although technical trading was floated, and jitters reverberated throughout the market.

"Asian traders spoke of some 4,000 lots of gold being 'dumped' on the COMEX and of a "large sell order,"" said Mark O'Byrne, executive director at GoldCore, a bullion dealer. "This would suggest that the sellers may not have been profit motivated and official selling may have been involved."

In this context, the term "official" refers central banks, but they have been net buyers of gold instead of net sellers since 2009 and any mass selling would raise concerns of a reversal of this trend. According to Marcus Grubb, managing director at the World Gold Council, central banks have imported 198.4 tons of gold in the first half of 2011, whereas two years ago they were selling 450 tons a year.

Nigel Moffatt, treasurer and manager for the Perth Mint Depository, which sells gold worldwide, says that there has been strong demand from China, which vies with India for title of world's largest gold consumer, but predicting if it is going to China's central bank or just consumers is hard to ascertain. "We have seen some of our gold destined for China and we have recently had a lot of inquiry from banks that traditionally supply into that market."

Pullbacks in gold have been met with strong buying, a trend many experts think will continue. "We expect the buy-the-dip mentality to help underpin the metal," argues James Moore, research analyst at as the sovereign debt issues in the Eurozone persist and as questions over the size and power of the European Financial Stability Fund, or EFSF, remain.

Gold prices will continue to be dominated by the risk on/risk off trade as investors volley between stocks and gold until some catalyst appears. George Gero, senior vice president at RBC Capital Markets, says that investors are waiting for the dust to settle and that the see-saw for gold is here to stay for the short term.

The Federal Reserve released its Beige Book Wednesday, which detailed the state of the economy. The report yielded no surprises and did little to move the gold price. Five districts reportedly showed modest growth while the remaining 7 showed signs of weakening -- a mixed bag for the Fed as it prepares to discuss more monetary easing at its next meeting in late September.

Gold mining stocks were mixed Wednesday. Kinross Gold (KGC - Get Report) was down 0.23% to $17.67 while Yamana Gold (AUY - Get Report) was losing 2.60% at $16.47. Other gold stocks, Agnico-Eagle (AEM) and Eldorado Gold (EGO - Get Report) were trading mixed at $70.83 and $21.16, 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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AME $48.07 -0.06%
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