Gold Prices Pop on Fear - TheStreet

NEW YORK (

TheStreet

) --

Gold prices

rose double digits Thursday as investors opted out of stocks amid weak economic data and the end of the second quarter.

Gold for August delivery settled $11.10 higher to $1,245.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,249.50 and as low as $1,228. The

U.S. dollar index

was losing 0.02% to $85.76 while the euro was adding 0.22% lower to $1.23 vs. the dollar. The spot gold price Thursday was rising more than $3, according to Kitco's gold index. Spot gold also rose double digits throughout the day but lost some steam in late trading.

Gold prices reversed earlier losses to close near record highs as any hopes of a risk trade died. Initial jobless claims last week fell slightly to 457,000, but the persistently high number underscores the fragility of the U.S. economic recovery and dampens any investor optimism. Investors are also waiting for the final form of the financial regulation bill, which should be finished late this evenng.

The yield on 10-year Treasury bonds was at 3.10% as investors rotated into the U.S. dollar. A lower yield means that Treasury doesn't have to raise interest rates to entice investors to lend money to the U.S. Investors seemed torn between gold and the U.S. dollar and which is the safest place to put their money as the two assets typically move in an inverse correlation.

Video: Schiff Wants a Gold Standard >>

Typically, a stronger U.S. dollar hurts gold, as the dollar-backed commodity becomes more expensive to buy in other currencies. Gold had bucked its inverse correlation to the U.S. dollar as the European debt crisis exploded, as both were viewed as safe-haven assets.

The U.S. dollar could be more appealing for investors over the short term because it's the world's reserve currency and seems like the most stable fiat currency. However, many analysts believe this trend will be short lived as the U.S. $13 trillion debt price tag catches up to the country.

"One view is that if debt is going to remain a serious issue for some time to come and that

if governments are going to have to keep monetary policy very easy for some time ... then I think that gold prices will likely move a lot higher," says Nicholas Brooks, head of research and investment strategy for ETF Securities.

Gold prices took their cue from the

Federal Reserve

. The

Fed reiterated

Wednesday that interest rates would stay low for an extended period of time. The announcement was no immediate help to gold, but the

Fed's downgrade of the U.S. economy

coupled with continued "free money" and disappointing economic data provided support for higher gold prices.

The Fed also said that inflation worries were subdued and stable, which prompted some traders who had been buying gold as an inflation hedge to readjust their positions. With the inflation trade out of the gold market in the short term today's move can really be attributed to fear.

Thinning volume, momentum buying, book-squaring and today's options expirations will also lead to more volatile gold prices. "

We can't find new bullish news," says George Gero, vice president of global futures at RBC Capital Markets. "We hit $1,250 three times. But the technical picture is still $1,175 support and $1,250 resistance for now." Bargain hunters seem to be buying gold around the $1,220 area as they look to buy gold at a "discount."

Silver prices

were tracking gold and settled up 27 cents to $18.73 while copper ended up 7 cents at $3.

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

invest in gold

, were mixed.

Hecla Mining

(HL) - Get Report

was down more than 2% to $5.49 while

Agnico-Eagle

(AEM) - Get Report

was slipping slightly to $61.36. Other miners

Pan American Silver

(PAAS) - Get Report

and

Freeport McMoRan Copper & Gold

(FCX) - Get Report

were trading at $26.46 and $63.47, respectively.

--

Written by Alix Steel in New York

.

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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.