) --

Gold prices

ended modestly lower Tuesday during uneventful trading as rumors circulated that China may raise interest rates.

Gold for June delivery is still settling on the Comex division of the New York Mercantile Exchange, but was shedding $2.60 to $1,418.70 in after hours trading. The gold price has traded in a tight range from $1,424.70 to $1,412.10 while the spot gold price was shedding more than $3, according to Kitco's gold index.

Silver prices

closed down 10 cents to $36.98 an ounce. Both metals were able to stem steeper losses from Monday's session.

Vote: How high will silver prices go in 2011?

Investors were buying stocks and were in wait-and-see mode with gold and silver. Oil prices were volatile as well on reports that showed oil producing areas in Libya, now controlled by rebels, could ramp up production again. Gold and silver have been trading with oil as high energy prices underscored higher inflation.

Gold and silver make juicy investments when inflation is high as paper currencies lose value and hard assets are worth more.

Vote: Where will gold prices finish in 2011?

That inflation thesis is seeing some headwinds Tuesday as

China Securities Journal

reported that China's central bank could raise rates to tame inflation,

which is up 4.9% in February and could rise to more than 5% in March.

Main consumer product companies are raising prices from 5% to 15% in April, according to the article. The central bank has already raised rates 3 times in the past year, but at 25 basis points clips, which hasn't done much to change the negative real interest rate environment.


is seeing more cautious selling," says George Gero, senior vice president at RBC Capital Markets, "after option expiration last night ... also tightening by China ... are bringing hedge selling."

But this time China isn't the only central bank contemplating raising rates. The mood is fairly certain that the European Central Bank could raise interest rates in April, afraid of February's 2.8% inflation rate.

Financial troubles still loom large in the EU, however, as one of Spain's largest banks is asking for a $4 billion bailout and long term borrowing costs for Portugal rose to more than 8% on Monday.

Standard & Poor's

took another swing at Greece downgrading its credit rating two notches with a negative outlook as well as downgrading Portugal's senior debt one notch.

In the U.S., although the Federal Reserve won't be raising rates anytime soon, recent hawkish comments from Fed members have indicated that quantitative easing won't be reupped in June when the current program expires. Some more aggressive Fed presidents, like James Bullard, are calling for a $100 billion cut from the $600 bond buying program.

If rates are raised globally and the Fed stops pumping cash into the system, gold prices could take a hit. Gold prices rose 15.2% in the three months leading up to the Fed's quantitative easing announcement. Silver prices popped 53%

The Fed, and gold prices, will take direction from Friday's jobs number. Expectations are for the unemployment rate to stay at 8.9% and for the private sector to add between 190,000 and 200,000 jobs.

"I expect that if we see a rise higher than 225,000, you will see more expectations of a hawkish stance out of the Fed," says Phil Streible, senior market strategist at Lind-Waldock, "

which would lead to a strengthening dollar therefore putting pressure on the gold market."

Gold and silver are also contending with rebalancing headed into the second quarter where portfolio managers juggle positions to either take profits or ramp up holdings. Streible believes that "fund and money managers

will continue to hold both positions as

the metals continue to prove results by making new contract highs quarter after quarter."

Scott Redler, chief strategic officer for, sees gold as an investment and silver as a trade for the second quarter. "If we finally get a real breakout above $1,445-$1,450 and it holds, then I think we get to $1,550 and $1,600." Redler doesn't feel comfortable holding silver because prices are too volatile but looks for short term trading opportunities with the

iShares Silver Trust

(SLV) - Get Report


Jeb Handwerger, editor of, is adding to his gold positions on pullbacks. "These long pauses in the uptrend usually result in major moves to the upside rather than bearish tops which usually end in parabolic moves."

Gold mining stocks

, a risky but profitable way to

buy gold

, were mixed.

Kinross Gold

(KGC) - Get Report

was down 0.83% to $15.45 while



was adding 0.62% to $48.76.

Other gold stocks,


(AEM) - Get Report


Eldorado Gold

(EGO) - Get Report

were trading at $65.32 and $16.02, respectively.


Written by Alix Steel in

New York.

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Alix Steel


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