Silver Prices Climb as Gold Falls

Gold prices dropped on Money as investors took their profits but gold traded as high at $1,478 during the day. Silver did not seem to get affected by this profit taking and continued its rise.

By THE STREET

NEW YORK (TheStreet ) -- Gold prices were selling off Monday as investors traded in their gold for cash at record high prices and as the U.S. dollar rallied.

Gold for June delivery was down $6 to settle at $1,468.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,478 and as low as $1,465.40 while the spot gold price was shedding more than $14, according to Kitco's gold index.

Investors were taking advantage of gold's record rally Friday, when the metal popped 1%, to take profits. Record prices might also be scaring off traders unwilling to buy at the top. Silver prices seemed immune and were sill rallying 62 cents to $41.23 an ounce despite jumping 2.6% Friday, 7% for the week.

The U.S. dollar index was adding 0.25% to $75.05, a relief rally, now that the U.S. government avoided a shutdown and nailed down a budget for 2011. The currency had been selling off in anticipation of a government shutdown, which helped push gold higher Friday.

Oil prices were also reversing their Friday rally as rumors circulated of a possible cease fire in Libya orchestrated by the African Union. Saudi Arabia said that it would be able to produce 12.5 million barrels of a day of oil if need be, further offsetting supply concerns.

Silver, despite being impacted by the same fundamentals as gold, is continuing its climb past $40 an ounce. Silver for June delivery settled at $40.67. The CFTC's latest bank participation report showed that silver short contracts on the Comex grew 23% since the beginning of the year, which could signal a deeper correction to come or the possibility of higher prices if traders are forced to buy back those positions after silver's explosive rally.

"The final verdict will be days end," says Mihir Dange of Arbitrage when asked why silver prices weren't moving with gold. "If it doesn't correct itself out today, it will in the next coming days with either a gold rally or silver selloff."

George Gero, senior vice president at RBC Capital Markets, says that commodities "could see sell stops later in the day in general as dollar picks up a little," meaning that traders are forced to sell as gold, for example, if it breaks below a certain level.

Although some experts think that investors will be reluctant to truly abandon large gold positions as a rally to $1,500 is still waiting in the wings. "Ongoing concerns of EU debt, low interest rates and ongoing inflation concern are bullish longer-term [for gold and silver] with dips to be viewed as a buying opportunity," says James Moore, research analyst at FastMarkets.

Gold mining stocks, a risky but potentially more profitable way to buy gold, closed mostly lower Monday. Barrick Gold(ABX) lost 3% to $52.70 while Newmont Mining(NEM) was down 2.3% to $56.61.

Other gold stocks, Randgold Resources(GOLD) and AngloGold Ashanti(AU) were down between 2% and 4% to $85.33 and $48.89, respectively.

--Written by Alix Steel in New York.

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