Gold Prices Settle at New Record

NEW YORK ( TheStreet) -- Gold prices made new highs Tuesday as the end of the third quarter forced traders to re-balance their gold positions.

Gold for December delivery settled $9.70 higher at $1,308.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Tuesday has traded as high as $1,311.80 and as low as $1,276.20.

The U.S. dollar index was down 0.51% to $79.04 while the euro rallied to $1.35 vs. the dollar. The spot gold price was rallying $13.10, according to Kitco's gold index.

Tuesday was volatile as the metal reversed early double-digit losses to break through to new highs. Technical trading, bargain-hunting, rumors of a downgrade of Spanish debt and weak consumer confidence in the U.S. were setting the stage for higher gold prices.

Gold has been a top performer in the third quarter, rallying 5.2% as investors fled into the safe-haven asset on the back of a stalled U.S. economic recovery and weak guidance from top companies like Intel ( INTC).

The popular gold exchange-traded fund, SPDR Gold Shares ( GLD), currently holds 1,300.52 tons, just shy of the 1,319.21 tons it held on July 1.

Stocks are also on their way to ending the quarter on a positive note. The Dow Jones Industrial Average is up 10% for the quarter but this is after a painful slide in August and a monster rally in September.

"The end of the quarter is Thursday and you're going to have a lot of window dressing there," says Phil Streible, senior market strategist at Lind-Waldock. "If I'm a money manager or fund manager I want to look like I'm long gold, silver, Apple ( AAPL), some key movers from the last quarter."

Due to the rebalancing act, many traders aren't planning on taking gold's price swings over the next few days very seriously. Streible predicts prices could hit $1,315 to $1,325 an ounce towards the end of the week but then sell off after the "weak longs," those that are just buying gold as show for the end of the quarter, leave the market.

Long-term gold experts are still watching the Federal Reserve for signs of monetary easing. Expectations were slightly dashed late Monday when The Wall Street Journal reported that the Fed might introduce a smaller-scale, more long-term bond-buying program than the one introduced in 2009.

The more modest plan could hurt those traders who were selling the dollar and buying gold as a hedge against future inflation based on the expectation that the Fed would restart its printing presses.

Another wild card for gold prices has been consumer demand for gold jewelry from India and China. The fall is typically a strong buying season for Indian and Chinese consumers with festivals, new year celebrations and wedding periods giving consumers ample reasons to buy gold.

The worry has been that record-high gold prices would scare price-sensitive buyers. Reports indicate that demand picks up on corrections especially when prices dip to $1,200 an ounce. Eventually, they will get more comfortable with paying up for gold and create a floor for prices.

"I think they are buying now. There is an emotional attachment in India," says Frank Holmes, CEO of U.S. Global Investors. "They are also getting a lower value of gold. They are mixing it with other elements for those who are price sensitive."

Silver prices closed up 23 cents to $21.70 while copper settled 4 cents higher at $3.63.

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Gold mining stocks, a risky but potentially profitable way to buy gold, were mostly higher reversing earlier losses. Harmony Gold ( HMY) was up 1.86% to $11.52 while Silver Wheaton ( FCX) was slightly lower at $26.46 due to another downgrade to neutral from outperform from Credit Suisse. Other gold stocks Hecla Mining ( HL) and NovaGold ( NG) were trading higher at $6.25 and $8.96, respectively.

Capital Gold ( CGC) was trading 7.14% higher to $4.65 after rallying 14.21% Monday on the heels of Timmins Gold hostile takeover bid at $4.50 a share, the latest in a string of mergers and acquisition deals in the gold mining sector as companies scramble to ramp up their gold production.

Timmins said on its Web site that the combination of Timmins and Capital Gold would "result in a merger of two equal-sized companies with regional and operational synergies that would ... create a mid-tier, low cost, Mexico-focused gold producer."

-- 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.

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