Gold Prices Settle Up as Ireland Asks for Loan

NEW YORK ( TheStreet ) -- Gold prices closed slightly higher Monday after Ireland agreed to a bailout package from the International Monetary Fund and European Union and traders prepped for options expiration.

Gold for December delivery added $5.50 to $1,357.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,364.80 and as low as $1,347.90 during Monday's session.

The U.S. dollar index was adding 0.31% to $78.75 while the euro was losing 0.52% to $1.36 vs. the dollar. The spot gold price Monday was up $8.70, according to Kitco's gold index.

Gold prices spent most of the trading session treading water as Ireland relented and asked for bailout money from the joint IMF and EU lending facility. Although the euro amount and terms are still being finalized, the speculation is €95 billion, which was pressuring the currency and supporting the U.S. dollar.

The euro had been selling off as Ireland resisted a bailout and investors feared a default. Markets hate uncertainty, and a definitive plan should calm jittery investors and help the euro rise in value. The problem is a final decision could be weeks away and Portugal and Spain are still on the chopping block.

If investors keep worrying about the health of eurozone economies and debt contagion, the euro could continue to come under pressure and buoy the dollar. A stronger dollar is bad for gold as the dollar-backed commodity becomes more expensive to buy in other currencies.

A lack of crisis in Ireland might also temper any gains in gold. Gold likes crises. Investors view the metal as a safe-haven asset and buy it as protection against weak paper currencies and when disaster erupts. An Irish debt default was shaping up to put gold buyers in crisis mode but a bailout package has left gold without a strong catalyst.

"We're not in crisis mode," says Jon Nadler, senior analyst Kitco.com. Although gold prices might trade higher on technical buying, without a big crisis, levels like $1,400 gold will be hard to sustain.

"It looks like the $1,400 level might be a ceiling for gold for a while," says David Morgan, founder of Silver-Investor.com. "We have options expiration coming up Tuesday ... the last couple of months the metals have actually performed very strongly during expiration which is abnormal, normally prices fall off or back off so I'm waiting for that to get further direction."

Options expiration for both gold and silver contracts on the Comex takes place Tuesday when traders have to decide either to roll over their December futures contracts, for gold to February of 2011, or let them expire. Morgan thinks that gold will breach $1,400 again by the end of the year and silver will break $30 an ounce, but that prices will have to get through the volatility of options expiration first.

"Option expiration can be pressure on futures as they add longs or shorts to accounts," says George Gero, senior vice president at RBC Wealth Management. Many traders are looking to December to find direction for gold prices and discounting any current price volatility due to the shortened trading week.

The gold exchange-traded fund, SPDR Gold Shares ( GLD), also saw some trading action last week. On Thursday, when gold rallied 1.2%, the ETF shed more than four tons as GLD investors booked profits. On Friday, the ETF added back most of the tonnage and now holds 1,289.33 tons as investors still seem reluctant to exit their gold positions.

Gold prices will also look to China for any more signs that the country will fight inflation. On Friday, the Chinese central bank raised the amount of money banks must hold in their reserves by 50 basis points in its latest efforts to take money out of circulation.

Some analysts had been expecting a hike in interest rates, which would have been more severe, and could still happen in the future. Any steps to fight inflation would weigh on gold prices as the metal is seen as protection against future inflation.

Silver prices settled up 28 cents to $27.46 while copper lost 8 cents to $3.75.

Most Recent Quotes from www.kitco.com

Gold mining stocks, a risky but potentially profitable way to buy gold, were rebounding. NovaGold ( NG) was up 0.62% to $14.69 while Iamgold ( IAG) was adding 0.91% to $17.24. Other gold stocks Hecla Mining ( HL) and Couer d'Alene Mines ( CDE) were trading at $8.93 and $24.09, respectively.


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-- Written by Alix Steel in New York.

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