Gold Prices Recover as Dollar Drops

Prices settled higher Thursday as uncertainty over quantitative easing pushed the U.S. dollar downward, making gold a more attractive buy.
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(Updated for prices, additional information and market commentary)
NEW YORK (TheStreet) -- Gold prices strengthened in mid-day trading Thursday as the dollar buckled under selling pressure on quantitative easing concerns.

Gold for December delivery settled $19.90 higher to $1,342.50 an ounce on Thursday at the Comex division of the New York Mercantile Exchange.

The

U.S. dollar index

was down 1.1% to $77.28, while the euro was up 1.1% to $1.39 against the dollar. The spot gold price was gaining $17, according to Kitco's gold index.

"The dollar is the number one factor driving the rise in gold. There are also concerns about inflation emerging right now," said Toon Van Beeck of Ibisworld. He said gold will be vulnerable to shifts in news at this point and be very volatile ahead of the

Federal Reserve's

move next week.

Gold prices came under pressure on Wednesday after the

Wall Street Journal

reported that the

Federal Reserve

could be more cautious than previously expected in its stance on quantitative easing.

Uncertainty about the size and structure of the monetary stimulus has led to a more volatile dollar in recent days. Some sections of the market argue that a measured move may have a more muted impact on the dollar, while others suggest that further easing would weaken the dollar irrespective of the size as investors chase higher yielding assets in other countries.

The Federal Reserve is polling bondholders for their projections of central bank asset purchases over the next six months and its likely effect on yields, to gauge the impact of its next move,

Bloomberg reported

. There is little history that suggests that quantitative easing would be effective in boosting the economy.

Ongoing currency wars are also exerting pressure on the dollar. Investors would be waiting for the G20 meeting in November to see if countries will further their commitment to correct currency imbalances.

Meanwhile, The Bank of Japan said in its policy meeting Thursday that it would consider spending up to 5 trillion yen ($61 billion) in buying assets to boost its depressed economy,

Reuters

reported. It also advanced its next policy meeting to November 4, a day after the U.S. Federal Reserve holds its meeting.

Movements in the dollar are expected to be a greater influence

in the direction of gold in the near term, Daniel Wills of ETF Securities told TheStreet on Wednesday.

Meanwhile economic reports have been mixed. Housing data has been a little better than expected while durable goods data was not very encouraging. Early Thursday, the Labor Department reported a

surprise drop in initial weekly claims

early Thursday. The advance figure for seasonally adjusted initial claims fell by 21,000 to 434,000 in the week ended Oct. 23, from the previous week's revised estimate of 455,000. Analysts were expecting initial claims to rise by 6,000 to 458,000, according to consensus estimates from

Briefing.com

.

Investors will also be watching out for the advance estimates of GDP growth for the third quarter, which will be released on Friday. The U.S. economy is expected to have expanded by 2% during the quarter, according to consensus estimates from Briefing.com.

Silver prices

were gaining 49 cents to $23.89, even as

JPMorgan Chase

and

HSBC

were served with lawsuits alleging that they had manipulated the market. The rise in silver prices has significantly outpaced gold in the last six months.

Meanwhile copper prices were up by 2 cents at $3.79.

Image placeholder title

Gold mining stocks

, a risky but profitable way to

buy gold

, were rising at the open.

Barrick Gold

(ABX)

rose 2.6% on strong results.

AngloGold Ashanti

(AU) - Get Report

shot up 2.7%,

Newmont Mining

(NEM) - Get Report

was up 2.2% and

Gold Fields

(GF) - Get Report

surged 3.3%.

The 10-year treasury note was up by 23/32, weakening the yield to 2.647%.

-- Written by Shanthi Venkataraman in New York.

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