Gold Prices Clipped, Settle Below $1,400

Gold prices slipped double digits Wednesday as investors took profits and the dollar rallied.
By Alix Steel ,

NEW YORK (

TheStreet

) --

Gold prices

broke below $1,400 Wednesday as investors took profits and the U.S. dollar rallied.

Gold for February delivery lost $25.80 to $1,383.20 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,405.40 and as low as $1,372.10 during Wednesday's session.

The

U.S. dollar index

was adding 0.19% to $80.09 while the euro dipped 0.15% to $1.32 vs. the dollar. The spot gold price Wednesday was shedding $18, according to Kitco's gold index.

Gold prices lost steam as technical traders dumped the metal to take advantage of its record rally on Monday when gold settled at a new high of $1,416.10 an ounce. Money managers will be forced to trade gold in the coming weeks, either buying it to show clients they own it in their portfolios or selling it to book gains.

"Momentum traders

are extremely active," says George Gero, senior vice president at RBC Capital Markets. "Recent buyers are more skittish

also if momentum fades. Protection of positions so quickly means many recent buyers are quick traders ...

there are lots of nervous longs in the market now."

The popular gold exchange-traded fund,

SPDR Gold Shares

(GLD) - Get Report

, lost 0.3 tons on Tuesday as investors took modest profits. Recent corrections in the gold price, however, have been met with steady buying.

Rohit Savant, senior commodity analyst at CPM Group, predicts that "this month you might see some consolidation or short-term weakness

but any weakness in price would be very short-lived ... for a stronger bull move

in gold it will probably be January."

Gold was also coming under some pressure as the U.S. dollar strengthened.

The yield on the 10-year bond rose 7 basis points Wednesday

as demand for bonds sunk. The dollar and the bond price tend to move inversely.

"There is a theory that when the yields are higher then investing in currency is more attractive than investing in gold," says Axel Merk, president of Merk Investments.

Bonds are currently less attractive to investors who are betting that an extension of the Bush-era tax cuts as well as extended unemployment benefits will force the government to borrow more money. Investors dumped Treasuries in response pushing yields higher as the government had to sweeten the pot for investors, and the return on the dollar increased.

Merk thinks the mood of the day is that the dollar will give an investor more bang for his buck, but that long-term U.S. fiscal policy won't let that happen.

"The Federal Reserve wants to have more inflation

and the price level is going up," Merk said. He added this will be bad for the dollar as it loses purchasing power.

But the flavor of the day was weak gold with a strong dollar and a euro under pressure only helping that thesis. The eurozone currency was falling on news that Ireland will attempt to pass an austerity budget that would make €6 billion in tax cuts in order to secure bailout money from the International Monetary Fund/European Union fund.

The last factor weighing on gold was renewed worries that China will raise key interest rates this weekend ahead of the release of its core consumer price index on Monday. The fear is that higher borrowing costs in the country will crimp consumer and business spending and hurt demand for all commodities, particularly gold.

Brian Hicks, co-manager of the U.S. Global Investors Global Resources Fund, says a rate hike could hurt gold prices in the short term "but it's important to remember why China is raising interest rates and that's because of their concern about inflation and obviously gold does well in inflationary environments." Hicks predicts that a rate hike in China would actually be a positive for gold in the long term.

Silver prices

shed $1.52 to $28.52 while copper closed up 5 cents to $4.10.

Gold mining stocks

, a risky but potentially profitable way to

buy gold

, were also suffering.

>>Video: Gold Stocks to Buy as M&A Heats Up

Kinross Gold

(KGC) - Get Report

was down 1.34% to $18.35 while

Freeport McMoRan Copper & Gold

(FCX) - Get Report

was1.92% lower at $108.50. Other gold stocks

New Gold

(NGD) - Get Report

and

Gold Fields

(GFI) - Get Report

were trading at $9.25 and $17.54, respectively.

--

Written by Alix Steel in New York.

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Alix Steel

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