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Gold Prices Plunge on Better GDP Report (Update1)

Stocks in this article: AUY GG ABX NEM GLD IAU

Updated from 12:21 p.m. ET with settlement prices

NEW YORK ( TheStreet) -- Gold prices plunged for the second time in three days after a better-than-expected gross domestic product report led many investors to flee from the yellow metal. Gold lost 0.18% on Wednesday.

Gold for February delivery sank $21.80 to settle at $1,645.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,672.80 and as low as $1,636 an ounce, while the spot price was plummeting $17.80, according to Kitco's gold index.

"GDP improvement points directly toward the potential that we'll see consumer price index improvement, and I anticipate we will hit the inflation target before we hit the unemployment target, which could curb the amount of stimulus the Fed intends to print," said Jeffrey Sica, president of Sica Wealth Management.

The Federal Reserve last week announced a fresh quantitative easing program that would purchase $45 billion of longer-term Treasury bonds per month for an open-ended period. It made the unprecedented decision to tie the duration of the new easing measures to economic targets -- a dip to 6.5% unemployment rate and inflation at about 2.5% would trigger expiration.

The Bureau of Economic Analysis' third read on third-quarter U.S. gross domestic product hit 3.1%, which was up from the prior estimate of 2.7% and better than economists' expected view of 2.8%.

Stronger-than-expected economic reports typically don't bode well for gold, which many investors consider as a safe-haven investment during times of greater economic uncertainty. Traders view the yellow metal, traditionally, as a hedge against inflation.

The Labor Department revealed Thursday that initial jobless claims for the week ended Dec. 15 rose to 361,000, while economists had expected an increase to 357,000. The four-week moving average -- considered a better gauge of the economic indicator -- fell to 267,750, which was a decrease of 13,750 from the previous week.

An improving labor market would also suggest the economy could be slogging toward that 6.5% unemployment rate target. Though it may take a while, the possibility that the labor market is headed toward the goal instead of a retreat from it also indicates the eventual end to monetary stimulus.

Silver prices for March delivery plunged $1.44 to close at $29.68 an ounce, while the U.S. dollar index was shedding 0.20% to $79.25.

The euro currency continued its slight rally against the U.S. dollar as it ticked up to $1.3244 from the prior day's close at $1.3227.

"The euro now makes gold more expensive and the lack of inflationary expectations due to possible recession after fiscal cliff is on traders' minds," George Gero, precious metals strategist at RBC Wealth Management, wrote in a note on Thursday.

Gold-mining stocks were mostly lower on Thursday. Shares of Yamana Gold (AUY) lost 1.9%, and shares of Goldcorp (GG) were off 1.6%.

Among volume leaders, Barrick Gold (ABX) slipped 0.51%, but Newmont Mining (NEM) added 0.80%.

Gold ETF SPDR Gold Trust (GLD) dropped 1.2%, while iShares Gold Trust (IAU) slumped 1.1%.

-- Written by Joe Deaux in New York.

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