Gold prices plummet on debt talk

Gold prices reached a record $1,610 an ounce Tuesday. But after Obama praised bipartisan debt-limit plan, gold prices fell $25.

Gold prices have plunged $25 this session as conciliatory sounds on the debt ceiling debate have prompted cautious traders and investors to take profits.

August Comex gold futures [GCCV1 1587.50 -13.60 (-0.85%) ] rallied to a nominal all-time high overnight of $1610.70 an ounce, after gaining for 10 straight days. But gold prices tumbled Tuesday after the close of the floor session to a low just above $1585 an ounce.

The price of gold took a nose dive after a press conference at 1:30pm ET, where President Obama praised a bipartisan group of U.S. senators, known as the ”Gang of Six,” for offering what he believes will be a balanced plan to reduce federal deficits.

“We haven't seen heavy fresh selling, but long liquation and that was hastened back by the rally in the dollar," says HSBC precious metals analyst Jim Steel. "Obama's comments were nomenclature that the market could hang on to. The market had gotten very long and it did begin to steady out over $1600 the past few days."

The recent gold rally has been driven in large part by the protracted U.S. debt ceiling debate and the sovereign debt crisis in the euro zone. While one of those legs of the two-legged stool may appear rather wobbly, there is still a great deal of concern over the debt crisis in the euro zone and anticipation for the EU summit addressing this crisis in Brussels on Thursday.

So this intraday move lower for gold may be short-lived, traders say. The proposed debt deal is "paltry" and "it's not enough to really push gold down," says James DiGeorgia, editor of the well-known Gold and Energy Advisor. "We're not really solving the problem here."

Even if Congress passes the debt ceiling plan with no spending cuts, DiGeorgia predicts that gold will reach $1,750 gold by years' end, with the real chance of a spike to $2,200 an ounce, near its inflation adjusted high.