Gold Prices Catch Bounce

Gold prices rose slightly Thursday as investors bought gold after two days of declines.
By Alix Steel ,

NEW YORK (

TheStreet

) --

Gold prices

recovered Thursday after a two-day selloff as lower prices triggered "bargain hunting."

Gold for February delivery added $9.60 to $1,392.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,395.60 and as low as $1,381.10 during Thursday's session.

The

U.S. dollar index

was rising 0.07% to $80.08 while the euro was slipping 0.28% to $1.32 vs. the dollar. The spot gold price was up $5.70, according to Kitco's gold index.

Gold prices shed $32 in the last two trading sessions as investors took profits on new highs in the yellow metal. Bargain-seekers saved the day again, stabilizing prices as they took advantage of lower prices to buy gold. Strong demand helped gold boot its inverse correlation to the U.S. dollar as both assets were rising Thursday.

This price seesaw though should continue for the rest of the year. "Short term I think we get more of the same," says Jon Nadler, senior analyst at Kitco.com, "which is volatility

and wild swings ... if key support levels are broken at $1,370 and lower, we could have a more meaningful correction."

George Gero, senior vice president at RBC Capital Markets, was expecting gold futures could see more margin selling Thursday and lower prices Friday as traders are "evening out in a down week."

Nadler suggests traders or investors who were overweight gold could lighten up on gold positions at record high prices, but he still advocates that 10% of one's portfolio be in gold for the next 20 to 30 years.

Video: How to Buy Gold in 2011 >>

Gold also got a boost as uncertainty popped up in regards to the tax deal, which now looks to have reached a standstill in the House. The House Democratic caucus voted on Thursday to reject President Obama's tax deal as it was "currently written." Traders had been excited about the extension of the Bush tax cuts, unemployment benefits and business credits hoping it would jumpstart the economy. Markets don't like uncertainty and gold prices were benefiting.

Gold was also fulfilling its role Thursday as a safe-haven asset on eurozone issues and tension between North and South Korea.

Fitch

downgraded Ireland's debt rating to BBB+ with a stable outlook. Irish parliament will vote on the proposed austerity measure next week, which is expected to provide $8 billion worth of tax hikes and spending cuts so the country can secure its $113 billion loan from the International Monetary Fund/European Union.

Chinese officials met with North Korea leader Kim Jong II, and expressed continued support. The U.S. and South Korea were hoping China would put pressure on the country to calm its recent aggression toward South Korea.

Gold prices will continue to take their cue from Asia, but this time it might not be so positive. Investors are still spooked that China will raise interest rates this weekend to combat inflation, which would provide a head-wind for gold prices. Any rate hike would also weigh on silver and copper prices as investors would fear that slower growth in the country would crimp demand for industrial metals.

Silver prices

saw a $1.52 sell off Wednesday. Nadler says the support for silver, gold's cheaper and more volatile sister, is around $28.90. "If it breaks $27 and $25 then we are looking in the zone anywhere from $19-$23." Prices settled up 56 cents to $28.81 while copper was down a penny at $4.08.

Gold mining stocks

, a risky but potentially profitable way to

buy gold

, were trading higher.

Freeport McMoRan Copper & Gold

(AUY) - Get Report

was up 1.61% to $110.35 while

Goldcorp

(GG)

was 1.01% higherat $45.94. Other gold stocks

New Gold

(NGD) - Get Report

and

Gold Fields

(GFI) - Get Report

were trading at $9.23 and $17.71, respectively.

Freeport announced Thursday a $1.00 supplemental dividend for a 2-for-1 stock split.

--

Written by Alix Steel in New York.

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