Gold Prices Edge Lower in Volatile Trading

Gold for December delivery settled down 70 cents to $1,309.60 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,317.50 and as low as $1,297 in Thursday's session.

The U.S. dollar index was adding 0.10% to $78.86 while the euro was flat at $1.36 vs. the dollar. The spot gold price was down $2.60 according to Kitco's gold index.

Gold prices gave back early morning gains as better-than-expected weekly initial jobless claims and an upwardly revised second-quarter gross domestic product number in the U.S. improved investors' risk appetite. Traders also took profits in gold headed into the end of the third quarter despite looming global currency issues.

Although the European Union is trying to contain sovereign debt issues, investors were still worried over a possible "Greece II" in Europe. Moody's downgraded Spain's debt rating to AA1 with a stable outlook while protests raged in the country and elsewhere in Europe over proposed budget cuts and tax increases.

Although Moody's downgrade was late compared with its peers, the news came on the heels of Ireland's announcement that its bailout of Anglo Irish Bank could come with a $46.3 billion price tag leaving investors worried that Ireland would have enough money to support its financial system.

Struggling EU nations are in a bind as they struggle to meet budget deficit reductions without crimping economic growth. The European Central Bank is providing access to more short-term loans but is refusing to buy EU and government bonds, something Japan and the U.S. have done.

There is some speculation that the ECB will be forced to act and run its printing presses if inflation keeps dropping and growth keeps stagnating. The worries are similar to those that triggered a massive euro selloff and gold rally this past spring when Greece was at risk for default, which pushed gold prices through the psychologically important $1,200 level for the first time.

"Investor sentiment remains very positive towards gold with a raft of macro uncertainties driving interest," says Suki Cooper, commodities research analyst at Barclays Capital. "Physically backed gold ETPs [exchange-traded products] rose by 0.7 tonnes yesterday taking total metal held across the 22 products we track to a fresh peak at 2121.5 tonnes."

Gold prices have settled over $1,300 for three consecutive trading days and the longer gold can hold that level that stronger this new range becomes. But high prices could trigger some more profit taking and money managers could dump their gold positions once the fourth-quarter starts.

Kevin Cook, analyst for TheStreet's Options Profits, says "if you think that gold has put in a short-term top for the next few weeks, you might consider just buying an at-the-money put spread on the SPDR Gold Shares(GLD_)."