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Gold Stretches Past $1,400 on Middle East Conflict (Update 3)

Stocks in this article: GLD IAU ABX NG

Updated from 2:18 p.m. ET with price action following U.S. comments on Syria

NEW YORK ( TheStreet) -- Gold prices moved higher late Monday during electronic trading hours after U.S. Secretary of State John Kerry said Syria used chemical weapons against its civilians.

The news pushed the yellow metal past $1,400 as traders used the commodity as a hedge against uncertainty as to whether the U.S. will intervene in Syria.

Gold for December delivery at the COMEX division of the New York Mercantile Exchange was rising $9.10 to $1,402.20 an ounce. The gold price traded as high as $1,407 and as low as $1,388.40 an ounce, while the spot price was adding $7.79.

"I think any confirmation on use of chemical weapons would obviously be a potential for some kind of action," said Alan Gayle, senior strategist at RidgeWorth Investments.

Gold initially retreated Monday as traders remained wary of buying the yellow metal at more than $1,400 an ounce, a closely-watched industry level.

"What I'm looking at right now is not so much the fundamental story but the technical levels there around $1,400, and how this market is going to break to these levels," Eugen Weinberg, head of commodities research at Commerzbank AG, said Monday morning in a phone call from Frankfurt. "Whether we will go through right now or we will drop back, because a drop back might eventually provoke some profit taking after the recent gains."

COMEX gold prices peaked higher than $1,400 shortly after electronic trading opened Sunday night, but relinquished that level after an hour. The yellow metal during Monday trading twice more attained $1,400, but failed to hold those gains until U.S. comments on Syria arose after 3 p.m. ET.

The gold market was trading on thinner volume than normal as Monday marked a bank holiday in the U.K., leaving markets shuttered in London.

Prices popped on Friday after much weaker-than-expected new home sales in July pushed buyers into the market on the prospect that the soft economic data would push back the Federal Reserve's decision to scale back its monetary stimulus.

Silver prices for September delivery lifted 27 cents to close at $24.01 an ounce, while the U.S. dollar index was inching higher by 0.1% to $81.44.

Gold exchange-traded funds witnessed inflows of 4.7 tons on Friday to market the largest influxes since November 2012, according to data compiled by Bloomberg.

Analysts have said August's more than 4% rise in gold prices and the inflows into ETFs likely have been driven by a short-cover rally. Short covering occurs after a trader has sold a commodity with the hope that the value will drop and can be bought back at a lower price, thus earning a profit. The short-cover is when a trader sees the value of the commodity rise, and then purchases the commodity to make up for the loss incurred by initially having sold it short.

The Fed currently is purchasing $40 billion in mortgage-backed securities and $45 billion in longer-term Treasuries on a monthly basis. The gold market views these purchases, called quantitative easing, as inflationary policy. Many investors view gold as a hedge against inflation.

Gold mining stocks closed mostly higher on Monday, after mixed trading in the sector turned positive on Kerry's comments. Shares of NovaGold Resources (GFI) jumped 2.9%, while shares of Barrick Gold (ABX) added 1.8%.

Gold ETF SPDR Gold Trust (GLD) increased 0.41% to $135.45 a share, while iShares Gold Trust (IAU) gained 0.44% to $13.62 a share.

-- Written by Joe Deaux in New York.

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