Gold Reverses Gains, Falls on Dollar Strength (Update 1)

Updated from 10:21 a.m. EDT with settlement prices

NEW YORK (TheStreet) -- Gold prices settled lower Tuesday as the U.S. dollar strengthened against the euro, reversing earlier gains for the yellow metal.

Gold for August delivery settled down $9.30 at $1,579.80 an ounce on the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,602 and as low as $1,578.70 an ounce, while the spot price was down $11, according to Kitco's gold index.

"It's because of the two-year low in the euro, and that I think is the key: I's all about the dollar today that the two-year low in Europe is making commodity pricing in dollars very expensive," said George Gero, precious metals strategist at RBC Capital Markets.

Silver prices for September delivery settled down about 56 cents to $26.88 an ounce, while the U.S. dollar index climbed 0.25% to $83.36.

Gold initially rose as the eurozone agreed on the terms of a bailout for Spain's troubled banks. Eurozone finance ministers agreed to give Spain €30 billion to begin a bailout of the country's banks. The deal also would give Spain one more year to rein in its deficits.

"We're seeing continued concern in Europe over the debt crisis with a new bailout of Spain," said Tim Harvey, senior vice president at ETF Securities U.S.

Gold traders likely are preparing for the Federal Reserve to release its minutes Wednesday afternoon. The Fed has reiterated its commitment to quantitative easing if the U.S. labor situation continued to slide or stagnate, but many analysts have suggested that last Friday's slight miss on the employment number wouldn't be enough to move so-called QE3.

Though action may not happen Wednesday, heightened uncertainty among Fed bankers in the minutes could suggest future easing efforts.

John Williams, president of the San Francisco Federal Reserve Bank, said Monday that the unemployment rate was progressing at a snail's pace, which he said is an essential circumstance to provide sufficient monetary accommodation.

As for Tuesday's trade, investors may want to keep an eye on a $1,605 price level for gold.

"I think if we move through $1,605 to $1,607 in the gold, you'll probably see that nice upward thrust into the $1,620s and possibly $1,640s," said Phil Streible, senior commodities broker at RJO Futures. "The market will gain some momentum up there.

Streible said that few people are confident in the next round of earnings season, which he said could shift traders out of the S&P 500 and into gold.

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