Gold Prices Settle Near $1,200

Gold prices rose double digits Wednesday as investors braced themselves for disappointing economic data.
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NEW YORK (

TheStreet

) --

Gold prices

rose double digits Wednesday as investors prepared for disappointing jobs data and piled into gold as a safety net.

Gold for December delivery settled $8.40 to $1,195.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,205.50 and as low as $1,187. The

U.S. dollar index

was rising 0.49% to $81.01 while the euro was down 0.56% at $1.31 vs. the dollar. The spot gold price Wednesday was rising more than $10, according to Kitco's gold index.

Gold prices finally broke free of a tight trading range Wednesday and pushed past $1,200 an ounce in intraday trading. Many analysts still cite $1,225 as a strong resistance area.

"Was this an oversold bounce ... or will it start a new trend?" asked Scott Redler, chief strategic officer at

T3Live.com

. "I think now is just a downtime for gold ... I do think that with a little bit more time we will have an upper level base and then in the fourth quarter if gold decides to break that down trend ... it's going to start moving again."

Video: 3 Ways to Predict the Gold Price >>

Investors were buying gold as a safety net as worries surfaced about a weak U.S. unemployment report Friday. Wednesday's

Automatic Data Processing

report said that the private sector added 42,000 jobs in July, which analysts say is good but not good enough. The report is keeping investors jittery ahead of the Labor Department's nonfarm payroll report on Friday.

The Best Buy: Gold ETFs vs. Gold Stocks

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Traders are also anticipating some move by the

Federal Reserve

when it releases its rate decision next week. Although rates are expected to stay between 0% and 0.25%, some analysts think the Fed might announce additional steps to boost liquidity in the market, a sign that a U.S. recovery has stalled. The Fed stopped buying Treasuries back in March and there are talks that it might resume lending money to the U.S., especially if unemployment remains high.

The more debt the Fed buys, the lower interest rates will be and the more money there will be in circulation. Already the yield on the 10-year Treasury note, a benchmark, is less than 2.91%. One fear is that this move will lead to a devalued dollar, which hit an eight-month low against the yen on Tuesday, and a lack of confidence in the U.S. economy. Gold is seen as an attractive alternative to paper currency as a form of money that retains more value against a declining dollar.

Investors were also digesting the news that China will expand its gold market. Individual investors and consumers are already big buyers of gold, accounting for 11% of global gold demand in 2009, but now the People's Bank of China is trying to expand gold trading.

The statement is not yet posted on the English version of the PBOC's website but the Chinese State Council issued a release stating that more commercial banks will be allowed to import and export gold and will be urged to issue "yuan-denominated gold derivatives."

Gold bugs had been worried that China would actually lose interest in gold after China's State Administration of Foreign Exchange, or SAFE, called the gold market illiquid and small.

"That is clearly not the case," said George Milling-Stanley, managing director, Government Affairs, World Gold Council, "with the government taking significant steps to improve access to gold for their citizens."

China's reserve bank currently holds 1,054 ounces of gold, about 1.5% of its total reserves. Whether or not the bank buys more gold for itself, the bank appears to be taking steps to promote gold ownership among its citizens.

A weaker dollar and stronger yuan, as China lets its currency rise in value, will also help boost gold demand in the country. A stronger yuan gives consumers more purchasing power as well as making gold, a dollar backed commodity, cheaper to buy. Don Dion, portfolio manager for

ETF Action

, said "demand for jewelry will rise with incomes and investors in the country want something to buy besides stocks and real estate."

Silver prices

reversed directions and settled down 14 cents to $18.27 while copper closed up 4 at $3.40.

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Gold mining stocks, an alternative way to

invest in gold

, were rallying.

Kinross Gold

(KGC) - Get Report

was up 1.17% to $15.63 while

SPDR Gold Shares

(GLD) - Get Report

was rising to $116.89. Other gold stocks

New Gold

(NGD) - Get Report

and

Gold Fields

(GFI) - Get Report

were trading at $5.16 and $14.12, respectively.

--

Written by Alix Steel in New York.

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