Gold Prices Ease Off Highs

Gold prices eased off their recent highs late Tuesday as the U.S. dollar rallied.

Author:: Alix Steel
Publish date:: Nov 9, 2010 3:40 PM EST

NEW YORK (

) --

eased off new highs Tuesday on technical trading, a mixed U.S. dollar and European sovereign debt fears.

Gold for December delivery settled $6.90 higher to $1,410.10 an ounce at the Comex division of the New York Mercantile Exchange. Prices were drifting lower in after hours trading. The gold price Tuesday has traded as high as $1,424.30 and as low as $1,403.

The

U.S. dollar index

was adding 0.55% to $77.48 while the euro was down 1% at $1.37 vs. the dollar. The spot gold price was losing more than $14, according to Kitco's gold index.

Gold prices were on fire for most of trading but lost steam in mid-day as investors took advantage of its 2% rise this week to take profits.

"Anxious fund managers worried about missing asset allocations into metals were buyers and some previously sold hedges were removed ," says George Gero, vice president at RBC Capital Markets. But "profit taking

resulted in extremely heavy volume."

Gero is anticipating more volatility as traders decide whether to roll over their December gold future contracts or whether to sell. "If open interest is down tomorrow, we had liquidation after a new high."

Investors are turning to gold as they lose faith in the health of paper currencies and seek to line their portfolios with a safer hard asset. Although some gold bugs like those at the Gold Anti-Trust Action Committee argue that governments are illegally manipulating and suppressing the price of gold and silver, on the whole the metals are seen as a safer form of money, one that cannot be printed or be drawn into the currency wars which are set to rule the G-20 meeting later this week.

With worldwide governments from Germany to China to Brazil criticizing the United States for what they see as manipulating its own currency through the

Federal Reserve's

$600 billion bond purchase program, the race to debase is heating up. If a currency weakens, which the U.S. dollar will do as the Fed prints more money, the country's exports become cheaper to buy abroad. However, the currencies which rise as the dollar falls -- like the euro, yen and real -- hurt certain countries' exports.

The race to debase has highlighted the fragility of paper currencies and has many officials calling for a different world reserve currency other than the U.S. dollar, and gold has been mentioned as an option to ground fiat currencies. Although a full-fledged return to a gold standard is unlikely, some type of recalibration that uses gold is gaining interest especially after Robert Zoellick, president of the World Bank, floated the idea in the

Financial Times

on Monday.

Some gold bugs think Zoellick's suggestion that gold should be used as an international reference point doesn't go far enough. Peter Schiff, president of Euro Pacific Capital, said Zoellick is "dancing around the edges" of calling for a gold standard.

"The world desperately needs to go back to a real monetary system that's based on real money which is gold ... If we are going to go back to a gold standard, it's not at $1,400 gold," says Schiff. "If we want to maintain our current wages and prices in this country then gold has to go ... to $5,000 - $10,000 at a minimum."

Although the gold standard debate isn't solely responsible for pushing gold past $1,400 an ounce, it does support the "gold as money" thesis.

Video: Safe Way to Buy $1,400 Gold >>

Helping gold break to new record highs are renewed worries over the health of the eurozone with the focus now turning to Ireland. The yield on Ireland's 10-year bond is currently 5% compared to Germany's 2.39%. The spread means that investors are more cautious to lend money to Ireland, which means the government has to raise the yield to sweeten the pot.

Ireland is supposed to pass another round of austerity measures in early December and investors are worried this might lead the country to request bailout funds that Greece accessed earlier this year. There are also concerns over the health of its residential mortgage market and possible defaults which would put even more strain on Irish banks already eating up government funds.

Most experts are looking for gold to continue to take its cue from the U.S. dollar. Despite minor rallies like the market saw in mid-day trading, as the currency weakens, gold becomes cheaper to buy in other currency and is worth more as a store of wealth. Vietnam's central bank is betting that countries will keep printing money and as a result has lifted a gold import ban. According to

Reuters

, the country would allow reasonable volumes of gold into the country to stabilize the domestic market.

As gold demand keeps rising, John Carter, analyst for TheStreet's Options Profits, sees "a strong upward bias on this metal even after the $1,400 level ... I suspect we could find support around $1,387 should it be needed" but Carter's price estimate is $1,432.90 for gold. Carter is using any minor pullbacks in gold to add to his position.

Gold prices have risen 27% year to date and corrections can come fast and furious as traders take profits after record runs. Phil Streible, senior market strategist at Lind-Waldock, doesn't think the gold bull market is over but that the metal is susceptible to a little bit of a selloff. Streible recommends using the $1,378 and $1,355 level to add some long positions.

Silver prices

are also continuing their record breaking climb and are now eyeing $30.

"Silver stocks have had a good run but are still undervalued relative to metal prices," says David Morgan, founder of Silver-Investor.com. Morgan lists

Endeavour Silver

(EXK) - Get Report

as one silver stock with upside as silver prices continue their rally. Prices added $1.47 to $28.90. Copper prices closed up 8 cents to $4.04.