NEW YORK (TheStreet ) -- Gold prices were losing steam Thursday as a stronger U.S. dollar and profit taking curbed gains.
Gold for February delivery was losing $12.90 at $1,599.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,626.80 and as low as $1,597.80 an ounce while the spot price was down $14, according to Kitco's gold index.
Silver prices were shedding 33 cents at $28.76 an ounce while the U.S. dollar index was up 0.83% at $80.80.
The euro was losing more than 1% on the dollar, which was dragging on gold prices. Investors could also be taking profits after gold mounted a three-day rally that pushed prices up 4.6%.
"Staying above $1,600 an ounce and improving open interest could return gold buyers," says George Gero, senior vice president at RBC Capital Markets, "Iran, Middle East and continuing worries about Europe will be on investors minds."
Gold's connection to the "risk on trade," meaning that the metal has been rallying alongside stocks and the euro, can mean that gold is not being traded as a safe haven.
Jeffrey Wright, senior research analyst at Global Hunter Securities, thinks that if there were safe haven buyers in the market, gold would be soaring. Gold "needs an escalation for the safe haven phenomenon to kick in with either international potential conflict," referring to the West's political issues with Iran, a possible oil embargo and a power transition in North Korea.
James Moore, research analyst at FastMarkets.com, sides with Gero, saying that "tensions between Iran and the West will continue to bolster gold, as safe-haven interest increases."
Gero says that a close above that price could trigger buy stops, where traders jump into gold at a predetermined price, which leads to a momentum rally. "Inflation may [also] rear its head when we see fiscal stimulus on two continents."
Wright also cited inflation as a possible reason for gold's persistent 3 day rally. "I think we are seeing some signs towards moderate inflationary pressure not only in commodities but in finished goods and anything to do with inflation is good for gold."
"We've been in such a low inflationary environment, inflation between 2-3%, and if inflation increased a little bit above 3% that is a big move compared to the relative stable inflation environment," says Wright.
Wright sees gold range bound for the year between $1,450 and $1,750 an ounce. "I don't think the bull market is over, near term consolidation that could go on for six months or longer." Wright thinks that until there is a resolution with Europe's sovereign debt crisis, gold prices will have a hard time gaining momentum. Once Europe's crisis is resolved, the dollar will stop gaining against the euro and investors will look at the U.S.' fiscal problems and see the dollar isn't as stable as previously thought.
"They are going to go 'what about us,'" says Wright. "We have no ability to repay this debt and the only way to pay it is to devalue the currency ... gold will definitely come back into focus [when] depreciating the dollar [becomes] a practical policy."
In the meantime, Wright predicts that gold will find strong physical buying support around the $1,500-$1,550 area. Not only will retail investors want to "defend" that area, but central banks might also find that level attractive to buy.
The likely buyers are emerging market central banks like China, Turkey and Russia. Turkey bought 41 tons of gold in November, according to data from the International Monetary Fund. Gold's low for that month was $1,675 an ounce.
For the short term, gold will not only look to Europe but to the U.S. First, gold must digest France's mixed debt auction, which was met with tepid demand and higher yields. Hungary also lowered the amount of money it hopes to raise in its debt auction as yields jumped almost 2% in its last offering.
Then the focus turns to the U.S.' jobs picture with the Labor Department set to release December's unemployment data on Friday. Nonfarm payrolls are expected to increase by 150,000 while the private sector is expected to add 170,000 jobs, according to Briefing.com's consensus. The unemployment rate could rise to 8.7%. ADP said the private sector added 325,000 jobs in December.
Some analysts have been ratcheting up expectations as weekly initial jobless claims have come in better than expected and as the pace of hiring has improved. Gold will look to the dollar for direction. If the number comes in better than expected U.S. stocks could pop dragging gold higher but if the number disappoints then the U.S. dollar could become the safe haven of choice and hurt gold. A stronger dollar trumped better economic data Thursday which was hurting most assets.
Gold mining stocks were mixed Wednesday. Barrick Gold(ABX) rose 1.49% at $48.22 while Newmont Mining(NEM) lost 0.31% at $61.89.
Other gold stocks, Goldcorp(GG) and NovaGold(NG) closed modestly lower at $45.16 and $9.05, respectively.
