NEW YORK ( TheStreet ) -- Gold and silver prices were higher as traders bought gold ahead of the long holiday weekend but the threat of volatility remains.

Gold for June delivery was adding $10.60 to $1,533.40 an ounce at the Comex division of the New York Mercantile Exchange. The metal has traded as high as $1,535.50 and as low as $1,518.40 while the spot gold price was up $14.50, according to Kitco's gold index.

Silver prices were rising 64 cents to $37.97 an ounce while the U.S. dollar index was shedding 0.66% to $75.08.



While gold and silver prices were rallying into the long holiday weekend, thin volume and technical trading could trump upward momentum.

Traders before a long holiday weekend tend to trade in the morning, put on "safe positions," or buying assets they would feel comfortable leaving their money in for three days, and then check out. Gold sometimes benefits from that as it is considered a safe place to stash cash. On the flip side, traders looking to take profits might sell their gold, which has rallied four out of the past five trading days.

"Physical interest has proved to be robust but more importantly ETP flows have turned positive," writes Barclays Capital in its daily commodity note. "Metal held in trust rose by a modest 0.7 tons yesterday but this marks the sixth consecutive day of inflows, taking holdings to their highest level since the start of the month."

Jon Nadler, senior analyst at Kitco.com, thinks that gold and silver will have to wait for more momentum until after the holiday weekend. "I think you're looking at bargain hunters in the $1,480-$1,500 range in gold but again we have to overcome decisively the $1,530-$1,540 area until we can talk about higher levels."

Short term gold and silver will be forced to take their cue from the dollar and euro as the IMF, European Union and European Central Bank debate how to keep Greece afloat while not sinking other countries or banks that have loaned a lot of money to the country. Any default could spark safe haven buying in gold but a weaker euro would boost the dollar and put pressure on the metals.

Nadler believes that Greece or Portugal might be forced to sell some of its gold reserves, despite the fact the countries didn't do so last year when the debt crisis first exploded. "They might have to," says Nadler, " at least a portion might be pledged or perhaps mobilized in other ways because at the end of the day this is the reason why you keep gold in the basement."

Longer term, it's demand from China that could make or break gold prices.

According to the World Gold Council, Chinese gold demand could double under ten years. China consumed 233.8 tons of gold bars, coins and jewelry in the first quarter but worries had been cropping up that growth could slow. Goldman Sachs predicted that growth would moderate in China in 2011 to 9.4% and in 2012 to 9.2% due to aggressive interest rate hikes needed to fight inflation. Goldman wrote that April's weak manufacturing data was a demand issue as people and corporations spent less as it is more expensive to borrow now in China and as banks have to keep more money locked up.

Extra income in China is one of the reasons why gold demand is so strong. If that slows and rates keep rising, so will the ability and desire to buy gold.

Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund, says this is just a "bump in the road ... you can slow down the growth a little bit and you can play with the inflation numbers but ultimately speaking the modernization is going to drive demand and the supply demand shift isn't going to change"



Initial estimates are that Chinese gold imports could pop more than 400 tons in 2011, according to GFMS, a precious metals consultancy, and that's not counting all the gold produced in the country. China is currently the largest producer of gold in the world. According to Reuters, China National Gold, the largest state owned gold producer, said that gold demand would jump 22% in the next three years and would keep outpacing internal production.

Gold mining stocks were rallying. Barrick Gold ( ABX) was up 0.95% at $47.62 while Newmont Mining ( NEM) was adding 1% to $56.41. Other gold stocks, Goldcorp ( GG) and AngloGold Ashanti ( AU) were trading at $50.18 and $45.22, respectively.


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-- Written by Alix Steel in New York.

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

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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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