NEW YORK ( TheStreet ) -- Gold prices suffered more losses Thursday on lackluster physical buying as gold's appeal as a safe haven deteriorated.

Gold for February delivery dropped $14.60 to $1,318.40 an ounce at the Comex division of the New York Mercantile Exchange. But the futures market wasn't where gold was getting killed. The spot gold price was sinking more than $28, according to Kitco's gold index.

The gold price on the Comex was still stuck its recent range, trading as high as $1,347.50 and as low as $1,315.70 during Thursday's session. Gold is now testing its $1,315 support level. If prices can't hold, the next downward step is $1,265 an ounce.

The U.S. dollar index was down 0.05% to $77.76 but the dollar itself was rising 0.72% against the yen after Japan received a credit downgrade from Standard & Poor's to AA-, its first downgrade in nine years.

Gold prices were down in every currency as the risk-on trade was eroding gold's shine, despite a jump in U.S. weekly jobless claims. The SPDR Gold Shares ( GLD) exchange-traded fund stemmed its losses Wednesday currently holding pat at 1,229.58 tons but its huge 42-ton decline this week combined with a lack of buyers has left extra supply in the market.

Gold's decline Thursday in the physical market just points to how influential gold ETFs can be. The futures market was struggling also but not as badly as traders took a breather. It was the spot price though that has to absorb a lack of ETF buying.

"Investors that are trading tactically in the gold market have taken some profits away from some of the other products," says Will Rhind, head of U.S. operations for ETF Securities. "However, the more strategic long-term investor is still very much part of the gold story."

Rhind says that ETF Securities' OTC business has seen no redemptions. The GLD has been a favorite trading vehicle as gold prices rise because it is so huge and liquid. ETF Securities' U.S. listed products -- ETFS Physical Gold ( SGOL) and ETFS Physical Asia Gold ( AGOL) -- while growing, are much smaller.

Rhind says that if 2010 was any guide then a substantial dip in the spot price could bring in physical buyers like jewelry buyers. Jewelry demand increased 18% in the first nine months of 2010.

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