NEW YORK ( TheStreet) -- Gold prices sank Thursday as profit-taking and momentum selling eroded the yellow metal's appeal as a safe-haven asset.

Gold for February delivery lost $15.20 to $1,371 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Thursday has traded as high as $1,387.30 and as low as $1,361.60.

The U.S. dollar index was down 0.05% to $80.18 while the euro was slightly lower to $1.32 vs. the dollar. The spot gold price was up $12.50, according to Kitco's gold index.

Investor enthusiasm might have peaked for the year as traders dumped gold before the Christmas and New Year's holiday. This leaves gold vulnerable to volatility and tight trading ranges as prices are subject to short-term trades and book-squaring.

A key support level for gold is $1,370 which was broken as investors took profits. The $1,370 was a key level and probably activated some sell-stops in which traders must sell some positions to lock in gains. However gold managed to bounce off its intra-day low to settle over $1,370. Gold could see some "bargain" hunters emerge tomorrow as they look to buy gold on a dip.

James Moore, research analyst for, is more optimistic and says that "gold and silver are likely to find further support from investor diversification" despite any price pressure.

The broader landscape is still ripe for higher gold prices. Spain is still facing a potential downgrade from Moody's after Standard & Poor's slashed Belgium's rating. Moody's has also put Greece's Ba1 rating on review for an even deeper downgrade. Although the downgrades would be no big surprise, it would ignite sovereign debt fears, which has been good for gold during this past year,

Investors turn to gold during times of market uncertainty or paper currency devaluation. The U.S. dollar is subject to the latter as the Senate passed President Obama's tax deal. The bill now has to pass the House, which it's expected to do despite gripes from the Democrats.

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An extension of Bush-era tax cuts, continued unemployment benefits and a lax estate tax, some fear the legislation will only widen the government's $13 trillion debt hole and lead to more money printing in the future.

Barclays Capital noted Thursday in its Commodity Daily Briefing that the inverse correlation between the U.S. dollar and gold "has started to become stronger (approximately 30%)" and the metal will be subject to future dollar gyrations. If the dollar takes a hit, if a QE3 comes into the picture to pay for the tax bill, that would only be good for gold.

Gold will also take its cue from Thursday's European Union summit and the topic du jour: How to create a bigger and possibly more permanent European Stability Mechanism to backstop any member default. Uncertainty and disagreement would weigh on the euro and be a mixed bag for gold.

A weaker euro would prop up the dollar and hurt gold prices, but debt contagion and indecision will provide support for gold as a safe-haven asset. The European Central Bank announced that it would increase its capital to € 10.76 billion almost double from where it was to shore up money for the financial system.

Another possible headwind for gold is relatively better-than-expected economic data out of the United States pointing to a solid recovery. Thursday's initial jobless claims from last week fell 3,000 to 420,000 despite an upwardly revised number of 423,000 from the week before. Slowly improving claims have offset November's weak unemployment report, which is a lagging indicator. Housing starts were up 3.9% while housing permits were down 4%, but recovery indicators, in general, are improving.

The Commodity Futures Trading Commission is also debating derivative regulation Thursday as well as how to apply position limits to the futures market. There seem to be more questions than answers as to what defines a legitimate hedger vs. a speculator. George Gero, senior vice president at RBC Capital Markets, says that global trading will only make these rules harder to define and that business just might move offshore. In the meantime, however, any lack of clarity might fuel current sell stops in gold.

Silver prices gave up 47 cents to $28.87 while copper was down 1 cent to $4.11. Silver prices popped 4% earlier in the week as JPMorgan ( JPM) announced that it would close out a large portion of its silver positions, most likely short. No details were disclosed, but the consensus was that the investment bank's silver buybacks would boost prices and trigger a short squeeze, leading to even higher prices.

Gero, however, was pretty unmoved by the announcement. He said recent "open interest and delivery changes are very small to the extent that I think it was mostly done in the physical market in London." Gero also speculated that any closeout has already happened citing volume and price changes.

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Gold mining stocks, a risky but potentially profitable way to buy gold, were trading lower. Freeport McMoRan Copper & Gold ( FCX) was down 1.17% to $110.74 while Goldcorp ( GG) was 2.28% lower at $44.80. Other gold stocks New Gold ( NGD) and Gold Fields ( GFI) were trading at $8.97 and $17.58, respectively.

Agnico-Eagle late Wednesday raised its 2010 reserve estimates to 20 million to 21 million ounces. The company will also budget a record $145 million for exploration in 2011 which will further increase reserves to as much as 22 million ounces. Agnico also raised its dividend to 64 cents a share. Shares were losing 5.50% to $75.95.

-- Written by Alix Steel in New York.

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