Gold Prices Slump as Dollar Surges (Update 1)

Updated from 12:35 p.m. EDT with settlement prices

NEW YORK (TheStreet) -- Gold prices dropped Tuesday as the U.S. dollar surged amid a weakening global economic outlook.

Gold for December delivery shed $16.90 to close at $1,709.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,731.20 and as low as $1,705.10 an ounce, while the spot price was losing $22, according to Kitco's gold index.

"We also had a downgrading of Spanish debt, so I think that has put some pressure on the euro," said Jeffrey Nichols, senior economic adviser at Rosland Capital.

There was plenty of negative news from across the pond to sink the eurozone's unified currency. Late Monday, Moody's downgraded five regions in Spain. The move came less than a week after the ratings agency decided to leave the country's sovereign debt rating unchanged. In addition, Spain said it doesn't expect to meet its budget deficit target for 2012, and a French business climate indicator dropped to 85, 5 points below the September reading.

The euro was dropping against the dollar to $1.2970, down from the prior evening's close of $1.3061.

Silver prices for December delivery fell 46 cents to settle at $31.79 an ounce, while the U.S. dollar index was jumping 0.57% to $80.

Another reason for the charge lower could be a small correlation between softening U.S. equity markets and gold.

The major averages were plunging as disappointing earnings from blue-chip companies and reduced corporate guidance among global economic bellwethers like DuPont (DD), 3M (MMM) and United Technologies (UTX) continued to worry investors.

"It's a confluence of markets. With equities off so much, typically when we see a big drop in equities there's sort of a knee-jerk reaction that brings gold down for a while before gold picks up in response to the weaker equities," said Nichols. "So it may be playing through that game once again."

Gold mining stocks were mostly lower Tuesday. Shares of Yamana Gold (AUY) were decreasing 3.3%, while shares of Randgold Resources (GOLD) were losing 4.1%.

Among other mining stocks, Barrick Gold (ABX) was off 1%, and Kinross Gold (KGC) was sinking 2.7%.

Gold ETF SPDR Gold Trust was down 1.2%.

-- Written by Joe Deaux in New York.

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