Gold Prices Sink as China Inflation Jumps (Update 1)

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Updated from 11:39 a.m. EST with settlement prices and the euro's move against the U.S. dollar

NEW YORK ( TheStreet) -- Gold prices dropped Friday after China reported an uptick in inflation, which likely would forestall near-term easing policies.

Gold for February delivery sank $17.40 to settle $1,660.60 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,676.90 and as low as $1,653.10 an ounce, while the spot price was losing $15.30, according to Kitco's gold index.

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"People digesting the China news that their inflation was a little bit better than expected, less chance of stimulus, but I think gold is going to continue to consolidate around this 200-day moving average," said Phil Streible, senior commodities broker at RJO Futures.

Silver prices for March delivery slumped 51 cents to $30.41 an ounce, while the U.S. dollar index was losing 0.33% to $79.53.

China's National Bureau of Statistics reported that consumer price inflation year-over-year in December accelerated to 2.5% from the prior month's 2%. It was the highest point of inflation in more than half a year.

With inflationary pressures expanding in China, the country is less likely to print more money to help stimulate its economy -- a move which typically makes the yellow metal an appealing asset.

In the U.S. on Friday the Bureau of Labor Statistics said import and export prices fell in November.

Gold initially moved higher on the news, but China's woes quickly dampened the mood and sent the shiny metal to session lows.

European Central Bank Mario Draghi's comments on Thursday that the eurozone would see economic activity gradually recover boosted the euro past $1.32 against the U.S. dollar, which offered a healthy jump to gold prices as well. Draghi's comments didn't signal an end to the possibility of further easing efforts in 2013, which likely were a highlight for the yellow metal.

On Friday, the euro continued its gains against the greenback as it ticked up to $1.3344, from the prior day's late close at $1.3269. Dollar weakness failed to overshadow China's inflation report.

"I think as soon as the euro currency continues an upside breakout and you see dollar weakness, traders will come back into gold and I think gold prices will move back up," Streible said.

Gold mining stocks were mixed on Friday. Shares of Randgold Resources (GOLD) was off 1.5%, while shares of Eldorado Gold (EGO) were adding 1.9%.

Among volume leaders, Barrick Gold (ABX) was down 1%, and Yamana Gold (AUY) was losing 0.11%.

Gold ETF SPDR Gold Trust (GLD) was shrinking 0.80%, while iShares Gold Trust (IAU) was dipping 0.74%.

-- Written by Joe Deaux in New York.

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