Gold Prices Fall on Greek Debt Drama

NEW YORK ( TheStreet ) -- Gold prices tracked the euro lower Wednesday as the market was jittery waiting for a Greece debt deal.

Gold for April delivery closed down $17.10 at $1,731.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,754.80 and as low as $1,729.10 an ounce while the spot price was shedding $14.80, according to Kitco's gold index.

Silver prices closed 49 cents lower at $33.70 an ounce while the U.S. dollar index was slightly higher at $78.58.

Gold investors were jittery with Greece still trying to secure its second bailout. Initially, gold and the euro were firmer as the feeling was a deal was imminent but then the euro and gold reversed directions on a Bloomberg report that the European Central Bank wouldn't help Greece reduce its debt load. The Greek government is still trying to push austerity measures through Parliament as well as negotiate a bond swap with private investors and the European Central Bank, which would leave the investors at a loss.

However, "the near-term outlook for gold looks positive," says James Steel, analyst at HSBC. Indeed, tonnage in the SPDR Gold Shares ( GLD) remained constant at $1,277 tons, despite gold's two day 2% decline. Gold is also finding some support as Federal Reserve chairman, Ben Bernanke, reaffirmed his commitment, to what many interpret, as a weak dollar policy by keeping rates low until the end of 2014 despite improving economic data.

Bespoke put out a note Wednesday saying that the U.S. dollar index was in danger of breaking below key technical levels "and is in danger of breaking its six month uptrend." A substantial dollar pullback could add support to gold as the two mostly move inversely to each other.

David Banister, chief investment strategist at TheMarketTrendForecast.com, thinks that gold is entering the last and final stage of its bull market. "I believe that it is a 13 year cycle and we are in the fifth and final wave pattern up," he says, which could last for 12-18 months.

The moderating of physical demand from China and India he says is also an indication of the end of the bull market. China imported only 38 tons of gold in December down 62% from November and slowing growth there would further effect jewelry consumption.

The China Securities Journal said that China's big four banks made 320 billion yuan in new loans in January and that the entire banking industry made 800 billion new loans. The People's Bank of China has yet to make a big move to loosen monetary policy, but Frank Holmes, a big gold bull, says "there is no need for anything else."

M2 supply in the country, cash in circulation plus savings, checking and any travelers checks, grew 13.6% at the end of 2011 to 85.16 trillion yuan and as today's data shows that number is increasing. Markets now await China's recent read on inflation, which will be released Thursday. Prices are currently up 4.1%. A high number means the country might be reluctant to pump a lot more money into the system but could trigger more gold buying as a store of wealth. A light reading could give the central bank room to ease monetary policy, but any deflation worries could crimp demand for gold.

Holmes thinks the gold price could more than double to $3,600 an ounce in 5 years. "People get so caught up with the next 3 minutes for gold and they should really be focused on the next 3 years," he says. "Does anyone really believe in the long term strength of the U.S. dollar?"

Holmes points to the fact that there is $18 trillion of debt rolling over this year in the U.S., Japan and Europe alone. "One looks at that magnitude then the Fed has to show leadership," as in keeping monetary policy accommodative to help the government.

Gold mining stocks were struggling Wednesday. Barrick Gold ( ABX) was down slightly at $49.07 while Newmont Mining ( NEM) was 0.44% lower at $60.59.

Other gold stocks, Goldcorp ( GG) and Yamana Gold ( AUY) were trading lower at $47.08 and $16.63, 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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