Gold struggles ahead of jobs report

By Alix Steel, TheStreet

Updated at 3:15 p.m. ET

Gold prices struggled Thursday as a rally in the U.S. dollar weighed on the metal and as investors remained jittery ahead of Friday's jobs number.

Gold (-GC) for December delivery settled down $2.60 at $1,829.10 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,833.60 and as low as $1,815.50 while the spot gold price was up by $3.20, according to Kitco's gold index.

Silver (-SI) prices lost 21 cents to close at $41.53 an ounce. The U.S. dollar index was up 0.4% at $74.47.

The minor rally in the greenback was weighing on gold prices, as the dollar-backed commodity becomes more expensive to buy in other currencies. The dollar as well as U.S. bonds were benefiting from a slight rush to safety as investors avoided stocks and booked profits in gold.

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Adam Grimes, director of tactical investments at Waverly, says there is no good fundamental reason why the dollar is higher but that it could be technical trading. "We've been short the dollar since December and we reversed that short yesterday," meaning that he bought the dollar to unwind the trade. If other traders follow suit, the dollar could see a short-term pop.

The big wild card for gold prices is the U.S. August jobs number that comes out Friday. If the jobs number is good, more confident investors may look to buy stocks instead of gold. But a better jobs number might also give the Federal Reserve less impetus to launch another round of quantitative easing, a hotly debated topic which is on the table for the two-day September meeting of the Federal Open Market Committee.

Any attempt by the Fed to pump more money into the system is typically good for gold, as investors, worried about subsequent inflation, buy the metal as a hedge against devaluing paper currencies. Rallies can sometimes be tempered, though, if investors look towards stocks, the biggest beneficiary of more quantitative easing.

If the jobs number Friday is disappointing, meaning that the private sector adds fewer than 100,000 jobs, the Fed can add that to the slew of negative data to support its case for more stimulus. The problem is that recent data have been so mixed -- factory orders and Chicago's purchasing managers index, for example, were all better than expected, while the Dallas Fed manufacturing index contracted sharply and weekly jobless claims continue to be high.

Uncertainty is hard for investors as they struggle to find a combination of safety and value. Those looking to gold will take advantage of price dips to buy, while those feeling better about the economy or who just want to cash in on the metal's recent rally will sell their gold positions.

A problem for gold, says Grimes, is that its traditional role as a store of value has changed as more speculative money has flowed into the market. As more "fast" money enters the market, gold could be subject to the same kind of volatility as the stock market. Both equities and gold could find themselves moving in the same direction at times.

There is "no good place to put your money," says Grimes, speculating that many are opting for cash. Grimes, along with many other chart watchers, is looking for a retest of the $1,650-an-ounce level. There has also been a pattern with the gold price where it has sold off overnight to then climb back into positive territory throughout the day. Grimes says that if that pattern is broken it's an "ominous signs for the longs."

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A pullback could be a big buying opportunity for some investors. "History says you buy all the pullbacks," says David Banister, chief investment strategist at TheMarketTrendForeca​st.com, who warns of extreme volatility between now and the end of October. "I would expect after this counter trend bounce . . . (that gold will) come down and retest the low $1,700s."

Banister also says that a potential headwind for gold is the stock market. If the S&P 500 ($INX) bottomed in August and is now in a long-term uptrend, perhaps supported by a QE3, then investors will opt for stocks. "People won't be as excited about gold."

Gold mining stocks were trading mostly higher Thursday afternoon. Barrick Gold (ABX) was gaining 1.8% to $51.64, while Newmont Mining (NEM) was adding 0.4% at $62.85. Among other gold stocks, AngloGold Ashanti (AU) was rallying 1.6% to $45.58, while Goldcorp (GG) was surging 2.9% to $53.41.