Updated from 10:30 a.m. ET with latest information on the spike in gold prices
NEW YORK (TheStreet) -- Gold prices surged in afternoon trading Wednesday as a so-called short-covering rally erased losses suffered earlier this week.
Gold for February delivery at the COMEX division of the New York Mercantile Exchange was gaining $26.20 to $1,247 an ounce. The gold price traded as high as $1,251.50 and as low as $1,210.80 an ounce, while the spot price was jumping $24.49.
A raft of positive economic data, following the worst November since 1978, failed to push the yellow metal below key technical support at around $1,210 an ounce. With better-than-expected November manufacturing activity and a positive pop in private payrolls, traders decided to vacate their short positions, Graham Leighton, a trader at Marex Spectron said in a phone interview from New York.
"These [traders] have been short gold for the last month or so," said Leighton, who added that one person "took their chips off the table," which triggered other traders to do the same. "The result of that is just a short-covering rally."
Prices dipped slightly on Tuesday and nearly $30 on Monday as the manufacturing data suggested that the economy is improving at a fast enough pace to force the Federal Reserve to scale back its economic stimulus program sooner rather than later.
"I think people are looking at the Fed potentially tapering next week, and I just do not believe that is on the table," Peter Hug, global trading director at Kitco Metals, said in a phone interview.
Many economists and market analysts are forecasting a so-called taper closer to March, and not for the Fed's next policy-making meeting scheduled in two weeks.
"[The gold market is] a little oversold and a little ahead of itself. And it's aggressively positioned to be short here," Hug said.
The gold market last month booked its worst November performance since 1978 as the yellow metal continued to lose favor during 2013 to stocks; the S&P 500 is up more than 25% year-to-date.
As for the Wednesday afternoon surge, Marex Spectron's Leighton said the rally won't likely continue.
"Now that these shorts are out of the market, our view is you have to look for a place to get short again," said Leighton.
Gold mining stocks were moving higher Wednesday in step with the gain in gold futures. Shares of Yamana Gold (AEM) were up 4.1% to $8.76.
Among volume leaders, Barrick Gold (ABX - Get Report) was adding 1.3% to $15.71 a share. Reports emerged Wednesday that John Thornton would be rising to head the world's largest gold mining company, replacing its founder, Peter Munk.
-- Written by Joe Deaux in New York.
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