NEW YORK ( TheStreet ) -- Gold prices were tumbling Thursday as investors dumped the metal in favor of cash, as uncertainty swirled and pressure mounted for Europe to find a solution for Greece, bondholders and banks.

Gold for December delivery was losing $27.70 at $1,619.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,646.50 and as low as $1,607.90 an ounce while the spot gold price was down $22, according to Kitco's gold index.

Silver prices were losing 56 cents at $30.71 an ounce while the U.S. dollar index was flat at $77.

The entire commodity space was under pressure Thursday with investors raising cash and putting some money to work in equities.

"Precious metals will see weakness as traders and investors look to maintain liquidity levels and cover margin requirements," says James Moore, research analyst at FastMarkets.com. Moore contends that if Europe stumbles here and bondholders are forced to take a big loss and liquidity tightens in the region then gold could sell off further, perhaps testing the $1,533 an ounce level.

Despite day-to-day volatility, at the core of the gold market is confusion. Experts are finding it hard to produce a reason for gold's recent price action. The metal has been moving with the stock market as investors feel better about buying assets. The metal has been moving inversely to the U.S. dollar and with the euro therefore intimately tied to headlines out of Europe. Both of these patterns seem to have evaporated today.

"The obvious suspects are not holding up," says Philip Klapwiijk, Global Head of Metals Analytics at GFMS an independent research consultancy owned by Thomson Reuters. Recent price action "suggests some bailing out going on."

Also not helping is the massive confusion headed into Sunday's European Commission meeting where the pressure mounts for leaders to provide clarity and a quick solution to save Greece, bondholders and banks. French President Sarkozy reportedly initated an emergency meeting with German Chancellor Merkel about the firepower of the bailout fund and how best to use its available 440 billion euros.

The two leaders also disagree on the loss bondholders should take on Greek bonds -- Merkel wanting a steep haircut to save Germany the expense of having to pony up more cash and Sarkozy wanting more moderate losses to protect its nation's banks, which have heavy exposure. The murky outlook has become a negative for gold.

Typically gold would shine in this environment as a safe haven, but it seems like investors prefer to sell the asset. "If you look at the volatility in the market of late ... $20 moves in a day are not that uncommon ... maybe someone has taken the view that sovereign debt pressures have eased in Europe ... or maybe there is a sufficient scare in a narrow market to bang the price down $20."

Frank Holmes, CEO of U.S. Global Investors, however, thinks this kind of volatility in gold is completely normal. "Over the past 10 years it's a non-event for gold to go plus or minus 15%," argues Holmes. "Anytime it's gone up 30% it historically goes through a 15% correction. Well, gold was up 40% in August and it's gone through an 18% correction. That's a normal process, it doesn't mean that it's all over ... its actually healthy."

Holmes thinks that investment demand is alive and well especially with global negative real interest rates as countries try to fight deflation and with the possibility of leaders leveraging Europe's bailout fund to 2 trillion euros. "If you take a look at the significant of fiscal policy, they refuse to make changes so therefore they are going to devalue their currency."

Klapwijk also says that the gold trade isn't broken. "I don't think the recent decline we have seen has broken investor sentiment ... I don't think most people think a definitive solution for Europe can be found so easily ... we are probably going to get a savage turn for the worst at some point and I think that that type of thinking still permeates gold market."

Klapwijk who is currently in Hong Kong says that physical buying is alive and well, that demand for 24 karat bars and jewelry was brisk. Mark O'Byrne, executive director at GoldCore, said that premiums on gold bars in Hong Kong and Singapore are at $2 and $2.50, respectively. "Vietnamese premiums were $27.79 over spot gold of $1,662.20 and Shanghai gold closed at a premium of $10.15 to world gold of $1,652.05."

Holmes also points to robust physical demand - what he calls the love trade. "The key there is rising GDP per capita in emerging market countries." Holmes argues that consumer spending is up 18% year over year in China, but that it only accounts for 30% of growth domestic product versus 70% for North America, which means China has a long way to go and will keep spending.

Gold mining stocks were slaughtered Wednesday. Kinross Gold ( KGC) dropped 7% to $13.55 while Yamana Gold ( AUY) shed 5.44% to $14.25. Other gold stocks, Agnico-Eagle ( AEM) and Randgold Resources ( GOLD) were trading lower at $46.15 and $98.90, respectively.

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-- Written by Alix Steel in New York.

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

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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