Gold Prices Settle Near Record

NEW YORK ( TheStreet ) -- Gold prices pushed past the $1,400 level Wednesday in a session marked by thin volume and a weak U.S. dollar.

Gold for February delivery added $7.90 to $1,413.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,414.50 and as low as $1,401.50 during Wednesday's session.

The U.S. dollar index was shedding 0.77% to $79.78 while the euro was up 0.72% to $1.32 vs. the dollar. The spot gold price was adding $4, according to Kitco's gold index.

Was Tuesday's double-digit rally a fake-out or a breakout? Based on Wednesday's prices, gold is up 26% for 2010 and 400% for the last decade. The massive rally has some warning of a gold bubble and a possible top within the next two years.

Goldman Sachs ( GS) says gold will top in 2012 at $1,750 an ounce, while Jon Nadler, senior analyst at Kitco.com, says gold could continue rallying in 2011 but will cap by the end of the year.

Others believe that the bull run is far from over and that if the consensus is a gold bubble, then in actuality the opposite is true.

"We're going to go into a period where there's a mania," says Rob McEwen, CEO of U.S. Gold ( UXG). He believes the market is "about a third of the way there."

Despite the media hype about gold, most of the public doesn't own it. One is still more likely to see people selling their gold rather than buying it. Popular trading vehicle the SPDR Gold Shares ( GLD) added 155 tons this year as investors piled into the physically backed gold ETF, but many money managers don't own it.

Jim Rogers, a legendary investor who co-founded the Quantum Fund, told me he was recently at a conference with 300 international money managers, and when asked, 76% of them had never owned gold.

"When you have a long bull market in anything, at the end everyone becomes hysterical, everybody owns it ... and then we will have a huge bubble in all of them," he says. Rogers estimates the commodity bull run, not just gold, is about halfway there.

Gold prices have tried three times to break and sustain record highs. Gold's record settle was Dec. 6 at $1,416.10 an ounce -- a level almost reached at Wednesday's close -- while the intraday high came on Dec. 7 at $1,432.50. Every time gold tops $1,400, however, substantial profit-taking has prevented any chance of it another leg higher.

On Wednesday though, it looks like buying and U.S. dollar weakness trumped profit-taking. Volume was scarce ahead of the New Year's holiday, so a trend might have to wait until next year.

Scott Redler, chief strategic officer at T3Live.com, says he needs to see the gold price close above $1,400 for a few trading days before he believes this breakout is sustainable.

"If the bears can't fill that gap" left from Tuesday's double-digit rally, "there's pressure there to the upside, and it means the bulls are in control," says Redler. The longer gold can hold that gap, the more short-traders will be forced to cover their positions and the more momentum traders will be forced to chase higher prices. This combination could be a perfect storm for an aggressive pop in gold.

If the price gap is filled, Redler predicts that gold will stay range-bound between $1,320 and $1,400 and that prices will need more time before a bigger rally.

China also raised interest rates again Wednesday. The rediscount rate, the interest rate banks must pay when they borrow money from the central bank, was increased by 45 basis points. The relending rate was raised by 52 basis points.

Today's rate hikes are not expected to seriously control inflation in the country, but are the follow-ups to China's more aggressive increase in the lending and deposit rates last Saturday. Gold has consistently shrugged off moves by China to combat inflation and appeared to be following suit today.

Silver prices added 38 cents to $30.70, a record close, while copper was down 1 cent at $4.31, after hitting another record high Tuesday of $4.33 .

Most Recent Quotes from www.kitco.com

Gold mining stocks , a risky but potentially profitable way to buy gold, were mixed. Kinross Gold ( KGC) was 0.21% lower at $18.88 while Freeport McMoRan Copper & Gold ( FCX) was adding 0.73% at $119.15. Other gold stocks New Gold ( NGD) and Gold Fields ( GFI) were trading at $9.60 and $17.82, respectively.

-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.

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