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Gold Surges as Short Covering Grows (Update 2)

Updated from 10:54 a.m. ET with settlement prices

NEW YORK ( TheStreet) -- Gold prices surged on Monday after the yellow metal gapped up above $1,400 an ounce on a significant amount of short covering by traders.

Gold for June delivery at the COMEX division of the CME popped $25.60, or 1.8%, to settle at $1,421.20 an ounce. The gold price traded as high as $1,438.80 and as low as $1,403.50 an ounce, while the spot price was jumping $20.50, according to Kitco's gold index.

"So we're seeing a significant amount of short covering going on, we've broken through some key psychological levels back to the upside at $1,400 to $1,408, $1,422," Phil Streible, senior commodities broker at RJO Futures, said in an interview.

Streible said the short covering also was in line with physical buying, which he said jumped over the weekend.

The move higher comes a week after gold saw its worst dollar loss ever, and a historic two-day collapse that left investors in the space uncertain if prices would find technical support any time soon.

Silver prices for May delivery rose 36 cents to close at $23.32 an ounce, while the U.S. dollar index was slipping 0.05% to $82.71.

While paper markets incurred deep losses at the beginning of last week, a number of gold analysts were saying physical demand for the yellow metal remained strong.

"Right now the sales for April gold bullion coins are about 153,000 ounces, which makes it the third-highest amount ever in a month for the United States Mint," Ed Moy, chief strategist for Morgan Gold and former director of the U.S. Mint, said on April 19.

Investors remain uncertain as to whether recent small gains in prices are signaling a sustained rally. The April 12 and April 15 sell-off led many veteran traders and analysts in the space to argue it could take weeks or months for gold to find solid technical support.

As for Monday's trade, it simply could be more consolidation since the drop.

"I think it's a matter of consolidation," Streible said. "But I think we consolidate right here, we hold above that $1,408-$1,400 level and I think you start looking at higher prices going forward." Streible said investors may want to look at more conservative positions.

Gold mining stocks were mixed on Monday. Shares of Barrick Gold (ABX) were shedding 0.55%, while shares of Eldorado Gold (EGO) were gaining 4.8%.

Among volume leaders, Kinross Gold (KGC) was up 3.9%.

Gold ETF SPDR Gold Trust (GLD) was popping 1.9% to $138 a share, while iShares Gold Trust (IAU) was up 1.9% to $13.87.

-- Written by Joe Deaux in New York.

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