NEW YORK (TheStreet) -- Gold prices were retreating Wednesday as investors took advantage of gold's record high to take profits.
Gold for August delivery was slipping $11.30 to $1,234.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,242.60 and as low as $1,232.60. The U.S. dollar index was slipping 0.64% to $87.82 while the euro was rising 0.34% to $1.20 against the dollar. The spot gold price Wednesday was down $2.80, according to Kitco's gold index. This divergence between spot gold and the futures market indicates that investors might be holding on to their physical metal but trading paper gold.
Gold prices have risen 2% since Monday and managed to touch a new high of $1,254 an ounce. Investors took the opportunity to raise cash in one of the few assets to yield a profit. The Dow Jones Industrial Average has taken a beating falling 316 points since Friday despite Tuesday's late-day rally.
In times of economic uncertainty, investors buy gold as a form of money that retains value. However, the need for cash to cover losses in the stock market and the desire by investors to take profits where they can can trigger selling.
"It's perfectly reasonable to see a pullback after a nice pop," says Brian Hicks, co-manager of the U.S. Global Investors Global Resources Fund. "But I really can't see how gold would fall materially lower. You may see a lot of gyrations ... but I think from a fundamental standpoint there are a lot of positive factors for gold to go higher." Hicks price target for gold prices is $1,300 in 2010 and $1,500 for 2011.
The recent pop in gold prices has many analysts wondering if the gold trade is too crowded. Large double-digit price moves typically signify big buyers coming into the gold market like hedge funds or central banks after which smaller investors follow suit for fear of missing the trade.
Mark O'Byrne, executive director of Goldcore, disagrees. Goldcore is an international bullion broker and O'Byrne says gold remains a fringe investment.
"Buy orders are coming from wealthy and high net worth clients (minimum order remains $10,000) so the increased buying is not from the man in the street or the average retail investor." Despite the absence of retail investors, Goldcore's May bullion sales almost tripled from a year ago, the company says.
