Gold Prices Flatline on Stronger Dollar

NEW YORK (TheStreet ) -- Gold prices were drifting sideways Tuesday as a stronger U.S. dollar and profit taking weighed on the metal.

Gold for December delivery was losing $1.90 at $1,668.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,686.70 and as low as $1,655.40an ounce, while the spot gold price was down $9, according to Kitco's gold index.

Silver prices were up 4 cents at $32.02 an ounce while the U.S. dollar index was adding 0.21% at $77.78.

Gold prices rallied 2% on Monday and some investors were using the pop to take profits while a stronger U.S. dollar capped any gains and kept bargain hunters sidelined.

Vote: Where will gold prices finish in 2011?

Experts seem split as to where gold goes from here. Mihir Dange, founder of Arbitrage, says he is short term bearish but long term bullish and is forecasting a wide range for gold prices from $1,550 to $1,715 an ounce. If either of those levels are broken, the upside and downside could be $100, according to Dange.

Gold prices continue to move with stocks, a bizarre correlation of late. "Both markets have been beaten up so much," argues Dange, "I think once we get out of this range and you find the S&P out of this range [the correlation] will return to normal "

It is also possible that gold and stocks are moving together on the same news but for different reasons. The latest headline is that the Eurozone will come up with a plan to recapitalize European banks whether through private funds, governments or the European Financial Stability Fund, or EFSF. Hopes of a plan rallied stocks, but those same hopes have many experts now seeing inflation -- that part of the plan will consist of the European Central Bank pumping more money into governments and banks.

"We are seeing gold rally on the news that there will be more printing money that we're not going to go into the deflationary spiral that we saw in 2008," says Jeb Handwerger, editor of GoldStockTrades.com. "There's definitely some upside momentum to take us to challenge some previous levels around $1,750 ... traders have to remember that short positions are increasing to record levels similar to 2008. Whenever the masses get to such a level like that you have to be thinking about a turn around and a relief rally."

Phil Streible, senior market strategist at MFGlobal, also says that the ECB will "expand their balance sheet no matter what." There is a built in back-stop, argues Streible, who says even in the U.S. the Federal Reserve could do so many things, among them pumping more money into the system, to help jumpstart the economy.

Streible argues that this doesn't mean another blow-off top for gold. "If [the European Central Bank] expands, it does weaken the euro and help the dollar and limit gold's rally ... gold will still go up but not that $2,000 number everyone is looking for." Streible thinks that $1,850 an ounce is more achievable for year end. "If you see equities breakout .... and gold is not north of $1,700, I think investors move out of gold and get more heavily weighted in equities."

Gold mining stocks were moving slightly lower Tuesday. Barrick Gold(ABX) was shedding 0.15% to $47.88 while Newmont Mining(NEM) was losing 0.25% at $65.11. Other gold stocks, AngolGold Ashanti(AU) and Goldcorp(GG) were trading lower at $40.62 and $47.37, respectively.

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--Written by Alix Steel in New York.

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