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Gold Dips on Cyprus Deal, Settles Above $1,600 (Update 2)

Updated from 11:27 a.m. ET with settlement prices

NEW YORK (TheStreet) -- Gold prices held above $1,600 an ounce on Monday despite an announcement that Cyprus received a bailout deal to keep its banks solvent.

Gold prices for April delivery fell $1.60 to settle at $1,604.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,612.80 and as low as $1,588.40 an ounce, while the spot price was falling by $4, according to Kitco's gold index.

The European Commission, the European Central Bank and the International Monetary Fund reached an agreement with Cypriot officials that included a €10 billion bailout. The small island nation-state located in the Mediterranean closed its banks last week as it attempted to piece together a bailout agreement to avoid insolvency.

"Once we saw the deal was reached, we saw gold prices start to trend lower. They broke through $1,600, which was a key level of support here for all of last week," Phil Streible, senior commodities broker at RJO Futures, said in an interview.

Gold prices rose above the $1,600 psychological threshold on March 18 as investors moved to the yellow metal as a safe-haven asset against the possibility that a measure to tax Cypriot bank accounts could spread to other economically troubled European nations.

ECB officials initially had offered a bailout that would have required Cyprus to tax all bank deposits, but the Cypriot parliament last week voted down the measure.

Gold prices benefited from the uncertainty that arose as to whether Cyprus would set a precedent for other struggling nations and as investors contemplated what a default in the island country could mean for the eurozone.

Monday's liquidation suggested the bailout deal was enough to table these worries.

"There were thoughts that this type of problem with Cyprus would have more contagion; we would see it spread to other European Union countries or other countries around the globe, and just having that type of discussion where 'Hey, maybe we can just take money out of people's bank [accounts],'" Streible said.

Silver prices for May delivery moved up 12 cents to $28.82 an ounce, while the U.S. dollar index was jumping 0.53% to $82.81 an ounce.

The ECB announced Monday afternoon it had decided not to object to Cyprus' central bank request for emergency liquidity assistance.

"Now steadfast implementation is key for Cyprus to regain access to financial markets and return to growth as soon as possible," the ECB said in a statement. "It [the ECB] will continue to monitor the situation closely."

Looking at the week ahead, gold investors have a slew of economic data to anticipate. New-homes sales expected out on Tuesday, as is the S&P Case-Shiller 20-city home price index. Housing numbers out last week weren't as impressive as economists had expected, which has offered a rough patch for some concern. Softness in the housing market could be positive for gold prices.

The final read on fourth-quarter 2012 gross domestic product and weekly jobless claims print on Thursday.

Gold mining stocks were mostly lower on Monday afternoon. Shares of Yamana Gold (AUY) were losing 2.6%, and shares of Kinross Gold (KGC) were off 3%.

Among volume leaders, Barrick Gold (ABX) was down 1.2%.

Gold ETF SPDR Gold Trust (GLD) was slipping 0.17%, while iShares Gold Trust (IAU) was decreasing 0.12%.

-- Written by Joe Deaux in New York.

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