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Gold Prices Down Double Digits

Gold prices were volatile Monday and were settling down double digits as investors took profits and sold gold for stocks.
Author:

NEW YORK (

TheStreet

) --

Gold prices

ended lower Monday after a volatile trading day as jittery investors debated between the safety of gold and the risk of stocks.

Gold for August delivery closed down $17.60 to $1,238.60 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Monday has traded as high as $1,263.70 and as low as $1,235.90. The

U.S. dollar index

was adding 0.45% to $85.70 while the

euro was slipping

0.74% to $1.22 against the dollar. The gold spot price Monday was rising more than $15, according to Kitco's gold index.

Gold prices see-sawed Monday. After beginning the session slightly lower, prices rallied as safe haven buying returned. But gold was unable to re-take its record high of $1,264 an ounce as investors took profits, opted for stocks instead of gold and were disheartened by India's June lackluster buying. According to the Bombay Bullion Association, gold imports into India might be 75% lower then the same period a year ago.

"Record and near-record high gold prices took a heavy toll of their own on India's gold demand for yet another month in June," observes Jon Nadler, senior analyst at Kitco.com.

Gold prices saw a flurry of technical trading activity last week as options expiration and the near-end of the second quarter triggered profit-taking, book- squaring, safe-haven buying and the need for cash to cover any losses in equities. This week is shaping up to be fairly similar, but add thinning volume ahead of the long July 4 weekend as well as a slow buying season for gold jewelry to the list of catalysts for volatile gold prices.

Beware A Gold Rally

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After gold prices settled at a near record high Friday

at $1,256.20 an ounce, many analysts are looking for a strong close over $1,260 to prove that this gold rally will bump prices to $1,300 an ounce.

"I want to see more stocks in the top tier come and make new highs," says David Morgan, founder of

Silver-Investor.com

. "I would like to see silver trade above the $20 level. If we got all of those in let's say the next week or two at the most ... I would have confirmation ...

that this is not just a technical rally,

that it's something bigger than that."

The news out of the G20 summit in Toronto was of little help to gold prices. The world's leading nations agreed upon reducing their

budget deficits by half by 2013

, but they still advocate growth. Massive austerity cuts could lead to less disposable income for consumers to buy gold, but China and India are typically the strongest buyers of physical gold vs. the U.S. and Europe, which account for more investment demand. According to the World Gold Council, total consumer demand in India for the first quarter of 2010 was 193.5 tons while China bought 105.2 tons of gold jewelry. Gold bulls are counting on this previous strong demand to hold up to make gold prices somewhat resilient to a consumer slowdown in Europe.

However, over the longer term, if first-world countries are able to get their debt under control, this could help strengthen their local currencies like the pound, U.S. dollar and euro, which would put pressure on gold prices. Typically as paper currencies grow stronger, gold may become less important as a safety hedge. Also gold is a dollar-backed commodity and a stronger dollar makes gold more expensive to buy in other currencies, which crimps demand and prices.

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Short-term gold will look to

Tropical Storm Alex

as well as Friday's June unemployment number for direction. Alex seems to be veering away from the BP oil spill in the Gulf of Mexico and economists expect private sector jobs to grow by more than 100,000 for June. However, if the storm causes any devastation or if unemployment is worse than expected as it was in May, gold could receive a strong safe-haven bid.

Silver prices

settled lower by 43 cents to $18.67 while copper lost 2 cents to $3.07.

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Gold mining stocks, a more risky and more profitable way to

invest in gold

, also reversed directions to head lower.

Hecla Mining

(HL) - Get Report

was shedding 2.25% to $5.65 while

Silver Standard Resources

(SSRI)

was losing 0.97% to $18.42. Other gold stocks

Yamana Gold

(AUY) - Get Report

and

Freeport McMoRan Copper & Gold

(FCX) - Get Report

were trading at $10.64 and $65.13, respectively.

--

(SYMBOL) by Alix Steel in

.

Alix joined TheStreet.com TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.