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Gold Prices Waver as Europe Stabilizes

NEW YORK ( TheStreet ) -- Gold prices took a break Wednesday as investors eyed greater stability in Europe's debt situation, prompting a move out of the safe-haven asset.

Gold for December delivery lost $3.60 to close at $1,826.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,848.20 and as low as $1,813.30 while the spot gold price was down $13, according to Kitco's gold index.

Silver prices shed 66 cents to settle at $40.53 an ounce while the U.S. dollar index was falling 0.3% at $76.83 as the euro rallied.

It was a case of "sell the rumor and buy the news" as the Moody's downgrade of two French banks, Credit Agricole and Societe Generale, helped investor breathe a sigh of relief. Markets had been expecting a ratings downgrade but the banks only lost one notch and BNP Paribas avoided a similar fate.

Investors pushed into stocks as gold prices were trading nearly flat. Even weak retail sales for August didn't surprise markets and didn't prompt a rush into safety.

German Chancellor Merkel was on a conference call today with French President Sarkozy and Greek Prime Minister Papandreou where the three reaffirmed Greece's importance in the Eurozone. Greece said it was committed to meeting all its deficit reduction targets. The goal of the call was to ease fears about a possible default, which has appeared imminent in recent days.

China also hinted that it would be interested in buying bonds of some of the struggling Eurozone countries, but stipulated that the country would need 'full market economy status,' according to World Trade Organization rules. Although China is in a position to make its own demands in exchange for its support, the possibility of its intervention helped lift stocks.

Many experts view gold's near term future as murky but think long term fundamentals are still intact. Barclays Capital wrote in a recent note that the unresolved European debt issues and weakness of the global economy creates a favorable backdrop for gold prices. "We expect price dips to be short-lived during the seasonally strong period for physical demand. Gold prices have held up and consolidated above the $1800 an ounce mark despite the dollar strengthening against the euro."

Commerzbank sites strong buying from India and China as supportive for high gold prices. "According to the National Bureau of Statistics, China's gold production soared in August by 31%, year-on-year, to 60.2 tons." This means that 454.8 tons of gold were produced in the first eight months of the year and China still imported almost 390 tons of gold in the first half of the year, according to the World Gold Council.

Continued U.S. dollar strength could pressure gold somewhat but Will Rhind, head of U.S. operations for ETF Securities, says "the picture is still very much the same for gold. The world is running out of safe havens ... but once this initial selling goes through we will see higher gold prices."

Rhind says it's not just the European situation that will drive gold, there are still high levels of inflation as well as the problem of U.S. debt. Inflation in India rose to 9.78% in August.

Gold mining stocks were modestly lower Wednesday. Kinross Gold (KGC - Get Report) was down 0.15% to $17.06 while Yamana Gold (AUY - Get Report) was losing 1.80% at $16.35. Other gold stocks, Agnico-Eagle (AEM - Get Report) and Eldorado Gold (EGO - Get Report) were trading lower at $69.97 and $20.66, respectively.

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-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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