What the Gold Price Did Today

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The gold price ticked higher Tuesday morning amid fresh fears over Portugal's financial problems, and a solid effort aimed at recouping some losses suffered in Monday's sharp sell-off.

Gold for August delivery, the most actively traded contract, rose $4.50, or 0.3%, to $1,310.60 an ounce in morning trading. Spot gold gained $2.70 to $1,310.

During the afternoon session, however, the yellow metal gave up earlier gains and slipped below the key $1,300 level. Shortly after noon, gold fell $11.30, or 0.86%, to $1,296.50 as the dollar firmed and sell stops were hit.

Here's why gold prices went for a roller-coaster ride today...

Gold Price Today Sensitive to Portugal

The day started out promising for the yellow metal as it took up its familiar stance as a hedge against financial and geopolitical uncertainty and investors flocked to the safe-haven alternative asset.

Goosing gold early Tuesday were worries that a unit of Espirito Santo International might not be able to pay back a loan to Portugal Telecom (NYSE ADR: PT). That ignited new fears about Europe's anemic financial system.

Last week, the Portuguese bank missed repayments on some short-term debt securities. That sparked concerns that the Portugal Telecom loan repayment would also be delayed or missed.

And, the country's government refuses to step in.

Over the weekend, Portugal's Prime Minister Pedro Passos Coelho ruled out any state support for the ailing lender. "Increasingly, banks look at the merits of projects, and those that don't pay the price. Companies that look more to friends than competence pay the price, but that price shouldn't be paid by society as a whole, and much less by taxpayers," Passos Coelho said.

Also stoking gold Tuesday morning were renewed anxieties over the grave situation in the Middle East, as well as ongoing tensions between Ukraine and Russia.

A Russian military transport plane was shot down over eastern Ukraine on Monday. Additionally, new reports surfaced that Russia is building up forces along its border with Ukraine.

Meanwhile on Tuesday, mere hours after agreeing to an Egyptian plan to end its week-long war with Hamas, Israel resumed its attacks on the Gaza Strip. Hamas rejected the cease-fire, maintaining it wasn't consulted by Cairo.

"The situation in Portugal and the Middle East are keeping gold supported for now," Bill O'Neill, a principal at Logic Advisors, told The Wall Street Journal. "If prices can get back above $1,320 an ounce, the metal's rally is still in place."

Gold's gains could be supported, or tempered, over the next two days as U.S. Federal Reserve Chairwoman Janet Yellen gives her testimony on U.S. monetary policy to Congress. Precious metal market participants are likely to remain guarded, listening for hints of a more hawkish tone from the central bank chief.

"Since she (Yellen) is testifying on behalf of the full FOMC and not speaking on behalf of herself, there is a risk she is less dovish than what the financial markets assume are her underlying views," Joseph LaVorgna, chief U.S. economist at Deutsche Bank, explained.

Gold price action Tuesday and Wednesday will be closely watched. A rebound would suggest gold's latest upward trend hasn't been broken and that Monday's rout was just a blip.

Gold Price Hit Hard Monday

Yellow metal prices on Monday suffered their biggest drop since December, tumbling 2.3%, or $30.70 an ounce, to $1,306.70. Monday's collapse was blamed on profit taking, a move into equities, triggered pre-placed sell orders, and jittery traders ahead of Yellen's testimony.

A lot of Monday's gold selling likely came from big players. And since the gold market is small, just a few large trades can move the yellow metal market rather quickly up or down.

Also blamed for pressuring the precious metal is the end of India's wedding season - a prime time for gold purchases in the world's second-largest gold consumer.

Money Morning Chief Investment Strategist Keith Fitzgerald fingered profit taking as the main culprit for Monday's gold retreat.

Appearing Monday on FOX Business' "Varney & Co" to talk about gold's biggest one-day, year-to-date drop, Fitz-Gerald said, ""A lot of people are taking gold profits and putting it back into stocks."

Indeed, Goldman Sachs Group (NYSE: GS) just boosted its S&P 500 year-end target to 2,050 from 1,900. Such a move would represent a further 3.7% rise for the index from Monday's close. Add that to the 7% year-to-date gain for the index, and you have double digit full-year growth for the broad-based benchmark.

Gold had logged double digit gains of 11.2% earlier this year, and is still up some 8% - besting the 7% year-to-date gain for the S&P 500 and handily better than the Dow's 2.9% rise since the start of the year.

For more on gold's record drop on Monday, watch Fitz-Gerald on FOX Business here.

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