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Gold Prices Continue to Slide on Stronger Dollar (Update 1)

NEW YORK ( TheStreet ) -- Gold prices followed the euro lower after Greece failed to secure its second bailout deal.

Gold for April delivery closed down $15.40 at $1,724.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,740.90 and as low as $1,714 an ounce while the spot price was shedding just $4, according to Kitco's gold index.

Silver prices closed flat $33.75 an ounce while the U.S. dollar index was up 0.20% at $79.10.

Gold prices have now fallen 2% in two days on a stronger U.S. dollar. The currency was helped by better U.S. economic data but also by a weak euro. The European currency was coming under pressure as the Greek government failed to agree on austerity measures needed to secure its second bailout.

Private bondholders must also approve a deal on the loss they are going to take when they swap in old bonds for new, longer dated ones, a key factor in helping Greece pay down their debt. A failure to convince the International Monetary Fund, European Central Bank and European Union that it will cut its deficit substantially could result in a default come mid-March when the country has 14.5 billion euros of debt maturing.

Portugal is also a worry, with many thinking the country might need more bailout money. Interest rates on five-year debt have risen to more than 17%. The combo was weighing on the euro and hurting gold.

Gold prices also rallied 5.5% since the Federal Reserve announced its intention to leave rates low until late 2014. In the Commodity Futures Trading Commission's latest commitment of traders report, speculative long positions rose by 24,000 contracts in the week ending January 31st, which means traders are starting to rebuild their positions. The increase in longs, however does leave the door open to profit taking as well as shift out of gold if investors start to think the Fed will raise interest rates earlier than expected.

"Continued weakness may technically bring us to $1,700 area of support," says George Gero, senior vice president at RBC Capital Markets, "we may only be in a corrections phase for now."

"Gold still has hurdles to overcome, such as potential bouts of dollar strength, technical resistance levels and profit-taking," wrote Barclays Capital in a recent note, but "gold remains in the ascendancy and we remain bullish."
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