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Gold Prices Settle Lower

Gold prices lost steam Thursday as investors bought stocks after a better-than-expected weekly jobless claims report.
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Gold prices

sunk below their recent record highs Thursday as investors bought stocks after a better-than-expected weekly jobless claims report.

Gold for December delivery closed $6.60 lower to $1,250.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Thursday has traded as high as $1,260.50 and as low as $1,243.50. The

U.S. dollar index

reversed directions and rallied 0.14% at $82.70 while the euro was down slightly at $1.26 vs. the dollar. The spot gold price was down $7.60, according to Kitco's gold index.

Gold prices have been trapped in a tight range at or around their record highs as volume remained light. Gold is flat on the week after settling at a new record high of $1,259.30 an ounce on Tuesday.

Gold's tug of war has been highlighted by a series of "good" reports, which are then tempered by red flags. Weekly initial jobless claims fell 27,000 to 451,000 and exports in July grew 1.8%, which led investors to buy stocks and sell some of their gold positions. But improving risk-appetite might be short lived. Jobless claims need to fall under 400,000 for a recovery to be substantial, and July's export number comes after a weak June.

High gold prices also could find support from fears that weaker eurozone nations are worse off than first thought. Despite a successful Portuguese bond auction, the yield on the 10-year note in Portugal is still 5.8% compared with Germany's 2.3%. The more reluctant investors are to lend money to a country, the higher the yields go. Ireland's bailout of its third largest bank,

Anglo Irish

, on the one hand reassured investors but the cost of the bailout is still up in the air.

Traders were also digesting the news that the

Federal Reserve's 12 districts reported "widespread signs of deceleration,"

according to its latest beige book. Typically, investors would turn to gold as a safe haven with that kind of dismal forecast. Gold prices instead lost some steam on the report, which indicated that the bad news was already factored in, leaving gold looking for a catalyst to move much higher.

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Many gold bugs are pinning their hopes on India's fall wedding and festival season to ignite a flurry of gold jewelry buying. "A strong Indian wedding season would most likely move prices for gold higher," says Will Rhind, head of U.S. operations for ETF Securities.

One concern is that record high prices might hurt demand in the price-sensitive market. "Our expectation is that demand in India will be relatively subdued this year," says Jeffrey Christian, managing director of the CPM Group. "The high price has really taken a toll on Indian demand." Jewelry demand picked up in July as prices slid to the $1,160 area, but now consumers must contend with gold at $1,250 an ounce.

Video: How to Trade India's Gold Buying Season >>

Christian is looking for a slight pullback in prices as demand wanes but then higher prices in late fall buoyed by strong investment demand. Christian is recommending going long gold or gold assets and hedging them using out-of-the-money puts.

But not all analysts are as wary. Rhind says that "consumers all around the world have had to adjust to higher gold prices ... we're used to a new price being set in the gold market." But in the short term, the gold price will have to contend with this lackluster buying and profit-taking.


profit-taking is expected given the recent price gains and scale of resistance encountered ahead of $1,265," says James Moore, analyst at

. "That said we ... expect fresh highs in the not-too-distant future."

Silver prices

were closed down 15 cents to $19.85 while copper settled lower by 5 cents at $3.44.

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Gold mining stocks

, a risky but profitable way to

buy gold

, were struggling.

Kinross Gold

(KGC) - Get Kinross Gold Corporation Report

was down 2% to $16.66 while

Freeport McMoRan Copper & Gold

(FCX) - Get Freeport-McMoRan, Inc. Report

slipped 1.76% to $77.75. Other gold stocks

New Gold

(NGD) - Get New Gold Inc. Report


Gold Fields

(GFI) - Get Gold Fields Ltd. Report

were trading at $6.20 and $14.58, respectively.


Written by Alix Steel in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.