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Gold Prices Settle Higher

Despite ending slightly higher, gold prices were volatile Tuesday as jittery investors rebalanced their gold holdings heading into the third quarter.
Author:

NEW YORK (

TheStreet

) --

Gold prices

Tuesday were finally able to gain momentum in the midst of

a stronger U.S. dollar

and a broad selloff in equities.

Gold for August delivery settled $3.80 higher to $1,242.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Tuesday has traded as high as $1,246 and as low as $1,230. The

U.S. dollar index

was adding 0.40% to $86.02 while the euro dipped 0.53% to $1.22 vs. the dollar. The spot gold price Tuesday slipped from its intra-day high and was adding more than $2, according to Kitco's gold index.

Safe-haven buying remained paramount for investors but primarily for U.S. Treasuries as gold was left on the sidelines. The yield for the 10-year note fell to 2.97% as jittery investors panicking over risks of a derailed global economic recovery looked for a safe place to put their money.

Stocks were getting pounded

with the

Dow Jones Industrial Average

slipping below 10,000 on weak data from the U.S. and China. U.S. consumer confidence fell to 52.9 in June, much weaker than expected. China fared no better. The country's leading economic indicator increased just 0.3% in April as compared to a previously reported 1.7% jump.

Also in Asia,

Japan worried markets

as the country's industrial production fell 0.1% and exports dropped 1.7%. Weaker growth in Japan highlights weaker spending abroad and instills doubts about the sustainability of the global economic recovery especially with tighter austerity measures being implemented throughout Europe.

Fears were also reverberating through Europe as investors were concerned that the European Central Bank's expiration of its 12-month loan to European Union banks and the deadline for EU banks to repay more than 400 billion euros will constrict lending in the banking industry. The ECB is planning to make loans available for three months at a 1% interest rate, but some investors worry it might not be enough.

Typically in times of fear, investors pile into gold, but prices have rallied 10% this year and traders, under pressure to book profits for the first half of 2010, might sell their gold positions. Gold prices managed to claw their way back into positive territory mid-day as the equity selloff ramped up and as the need for safety beat out the need for cash. Traders could also be buying gold ahead of the end of the second-quarter Wednesday in order to show they have some gold holdings in their portfolio.

Gold's Rally Isn't Over

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Long-term uncertainty could also prove to be a positive for gold, especially if the ECB is forced to pump more "cheap" money into the eurozone banking system, which some analysts speculate could trigger inflation down the road. As inflation devalues fiat currencies, investors turn to gold as a form of money that retains some value.

"

Gold is to remain vulnerable to further pockets of long liquidation/profit taking in the run-up to month/quarter-end," says James Moore, analyst at

TheBullionDesk.com

in his daily metals report. "

But with Chinese growth concerns surfacing and EU default fears on the rise we expect investor dip buying to provide further background support." A correction in the gold prices also bring out the bargain-hunters looking to buy gold at a "discount." This tug-of-war will pave the way for more volatility this week especially as volume thins out ahead of the long holiday weekend in the U.S.

Gold will look for direction from Friday's U.S. nonfarm payroll report for June. Weekly jobless claims have been falling but still remain more than 400,000 as the private sector continues to struggle.

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A weak unemployment number

is a mixed bag for gold. If stocks take a big hit, investors might be forced to sell gold to cover their losses but a constriction of risk appetite could also push spooked traders into gold. A positive number, on the other hand, would boost the risk trade and weigh on gold prices as investors have less need for a safety net.

Silver prices

settled down 8 cents to $18.59 while copper lost 15 cents to $2.91. Both metals are closely linked to a global economic recovery since they have multiple industrial uses and any slowdown in China, U.S. or Japan would crimp demand and weigh on prices.

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

invest in gold

, were selling off along with broader equities.

Freeport McMoRan Coper & Gold

(FCX) - Get Report

was falling more than 5% to $60.94 while

Gold Fields

(GFI) - Get Report

was lower by 1.89% to $13.52. Other gold stock

New Gold

(NGD) - Get Report

was slipping more than 3% to $6.22 while the popular gold ETF,

SPDR Gold Shares

(GLD) - Get Report

was actually rising 0.31% to $121.46 as investors piled into gold.

--

(SYMBOL) by Alix Steel in

.

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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.