Gold Takes a Wild Ride Lower

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"Inflationary indicators are good for gold, but a rate hike would hurt metal prices."

Gold prices tanked by double digits Friday with the action driven by a combination of technical selling and rumors that China might raise interest rates.

Gold for December delivery settled $37.80 to $1,365.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,410 and as low as $1,359.30 on Friday.

The U.S. dollar index was losing 0.12% to $78.12 while the euro recovered slightly after an early morning decline to $1.36 vs. the dollar. The spot gold price was down more than $46, according to Kitco's gold index.

Gold prices suffered Friday as speculation mounted that China might raise key interest rates to combat rising inflation. Thursday's consumer price index showed that year-over-year inflation in the country rose 4.4%, which was higher than expected, despite efforts to take money out of circulation.

China has raised the amount of money banks must keep in reserve multiple times over the past year but inflation still remains an issue. Although inflationary indicators are good for gold as they make the metal more appealing as a safe-haven asset, a rate hike would hurt metal prices.

"Looks like more position sellers from ETFs are starting to appear," says George Gero, senior vice president at RBC Wealth Management "in previous days they were buyers while futures were being sold."

An uncertain global economic climate and jittery equity markets are also not helping gold as many investors are selling some of their long positions in gold to raise cash and cover losses elsewhere. Gold has been one of the top-performing assets this year up 27% year to date.

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