) --

Gold prices

were falling for a fifth day Wednesday as the dollar strengthened and concerns that demand is weakening in the world's two largest countries grew.

Gold for February delivery was fell $31.40 to settle at $1,564.10 an ounce at the Comex division of the New York Mercantile Exchange. The

gold price

traded as high as $1,595 and as low as $1,557.60 an ounce while the spot price was down $37.10, according to Kitco's gold index.

Silver prices

for March delivery were settled down $1.50 at $27.23 an ounce while the

U.S. dollar index

was gaining 0.815% to $80.52.

"The selling is the perfect storm" of negative lease rates, undesirable technical analysis signs, weakness in the jewelry trade in the U.S. and India, and a stronger dollar, George Gero, vice president of global futures at RBC Capital Markets, said. "Until after New Year we may not see much in the way of a rally as it is expensive in terms of high margin deposits."

Gold prices declined after a Chinese government crackdown on illegal gold exchanges raised concern that demand in the world's second largest economy would weaken.

China's central bank ordered all gold exchanges, with the exception of two official exchanges in Shanghai, to cease operations, according to a statement yesterday. The two official exchanges, the Shanghai Gold Exchange and the Shanghai Futures Exchange, are enough to meet domestic demand for the metal, the notice released jointly by the People's Bank of China and the Ministry of Public Security said.

The Chinese crackdown on illegal gold trading venues comes after an announcement earlier in the week that demand for gold from India, the world's second-largest country by population, may also decline. Indian imports of the metal may drop 50 percent this month as the rupee's tumble against the dollar continues for a fourth month, according to the Bombay Bullion Association.

The currency slid to 53.03 rupees to a dollar on Dec. 27, from 44.08 on Aug. 1.

Vote: Where will gold prices finish in 2011?

Italy's successful bond auction also put pressure on the precious metal.

The country successfully sold 9 billion euros ($11.8 billion) of six-month bonds at auction today at a rate far lower than at its last auction on Nov. 25. The Italian treasuries were sold at a rate of 3.251%, compared with 6.504% last month. 2013 year notes also sold at a lower rate of 4.853%, down from a yield of 7.814% on Nov. 25.

Italy's lower borrowing cost kept chances of the European Central Bank printing more euros to stem the debt crisis low, reducing demand for the metal as a haven.

The metal extended losses as the dollar strengthened, leading investors to favor the currency over the metal as store of wealth. The dollar index was rising to its highest level since January.

Gold mining stocks

followed the metal lower Wednesday.



was falling 3.4% to $42.75.

Barrick Gold


was dropping 3.2%% at $44.06.

Kinross Gold

(KGC) - Get Report

was declining 3.6% to $11.15.

Smaller mining companies also fell.


(AEM) - Get Report

was slumping 3.4% to $34.90.

Hecla Mining

(HL) - Get Report

was dropping 6.3% to $5.06.

-- Written by Kaitlyn Kiernan in New York.

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