Gold Prices Edge Lower in Volatile Trading

Gold prices were volatile Thursday as eurozone worries sparked safe-haven buying and higher prices triggered profit-taking ahead of the end of the third quarter.
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NEW YORK (

TheStreet

) --

Gold prices

forfeited early gains and edged lower Thursday after better-than-expected U.S. economic data trumped sovereign debt worries in the eurozone.

Gold for December delivery settled down 70 cents to $1,309.60 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,317.50 and as low as $1,297 in Thursday's session.

The

U.S. dollar index

was adding 0.10% to $78.86 while the euro was flat at $1.36 vs. the dollar. The spot gold price was down $2.60 according to Kitco's gold index.

Gold prices gave back early morning gains as better-than-expected weekly initial jobless claims and an upwardly revised second-quarter gross domestic product number in the U.S. improved investors' risk appetite. Traders also took profits in gold headed into the end of the third quarter despite looming global currency issues.

Although the European Union is trying to contain sovereign debt issues, investors were still worried over a possible "Greece II" in Europe.

Moody's

downgraded Spain's debt rating to AA1 with a stable outlook while protests raged in the country and elsewhere in Europe over proposed budget cuts and tax increases.

Although Moody's downgrade was late compared with its peers, the news came on the heels

of Ireland's announcement

that its bailout of

Anglo Irish Bank

could come with a $46.3 billion price tag leaving investors worried that Ireland would have enough money to support its financial system.

Struggling EU nations are in a bind as they struggle to meet budget deficit reductions without crimping economic growth. The European Central Bank is providing access to more short-term loans but is refusing to buy EU and government bonds, something Japan and the U.S. have done.

There is some speculation that the ECB will be forced to act and run its printing presses if inflation keeps dropping and growth keeps stagnating. The worries are similar to those that triggered a massive euro selloff and gold rally this past spring when Greece was at risk for default, which pushed gold prices through the psychologically important $1,200 level for the first time.

"Investor sentiment remains very positive towards gold with a raft of macro uncertainties driving interest," says Suki Cooper, commodities research analyst at

Barclays Capital

. "Physically backed gold ETPs

exchange-traded products rose by 0.7 tonnes yesterday taking total metal held across the 22 products we track to a fresh peak at 2121.5 tonnes."

Gold prices have settled over $1,300 for three consecutive trading days and the longer gold can hold that level that stronger this new range becomes. But high prices could trigger some more profit taking and money managers could dump their gold positions once the fourth-quarter starts.

Kevin Cook, analyst for TheStreet's Options Profits, says "if you think that gold has put in a short-term top for the next few weeks, you might consider just buying an at-the-money put spread on the

SPDR Gold Shares

(GLD) - Get Report

."

Will Rhind head of U.S. operations for ETF Securities, however, argues that "the rebalancing effect as we get into the fourth quarter certainly could have some effect on the price," but that the recent rally has more to do with U.S. dollar weakness rather than technical trading.

Video: U.S. Dollar Dominates Gold Prices >>

The U.S. dollar has been selling off modestly in anticipation of more quantitative easing by the

Federal Reserve

, which has made gold, a commodity sold in U.S. dollars, cheaper to buy as other currencies rise in value.

The

CME Group

announced the launch of an E-micro gold futures contract which will begin selling on Monday only on the CME Globex. According to the CME press release, the contracts is one-tenth the size of a typical 100-ounce gold futures contract. Investors cannot take delivery of a 10-ounce gold bar, but they can take delivery of the micro contracts in the form of warrants and accumulate enough to receive ownership of an actual 100-ounce gold bar.

The new product will offer investors a cheaper way of buying gold and support growing investor demand, which surged 118% in the second quarter, according to reports by the World Gold Council.

George Gero, senior vice president and financial consultant for RBC Wealth Management, says the micro contracts won't have too much impact on the volatility of gold prices but will be good for "ETF and coin dealer hedges" as investors look for ways to trade the gold market.

Silver prices

closed 13 cents lower at $21.82 while copper settled down 1 cent at $3.65.

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Gold mining stocks

, a risky but potentially profitable way to

buy gold

, were mostly lower.

Yamana Gold

(AUY) - Get Report

was down 1.47% to $11.39 while

Freeport McMoRan Copper & Gold

(FCX) - Get Report

was 1.63% lower at $84.80. Other gold stocks

New Gold

(NGD) - Get Report

and

Gold Fields

(GFI) - Get Report

were trading at $6.63 and $15.21, respectively.

--Written by Alix Steel in New York.

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