Gold Prices Accelerate Losses as Central Banks Prop up the Eurozone

NEW YORK (TheStreet ) -- Gold prices accelerated losses Thursday as a hot inflation reading for August suggested a halt to further stimulus efforts from the Federal Reserve and world leaders jumped in to save the Eurozone.

Gold for December delivery lost $45.10 to close at $1,781.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,829.70 and as low as $1,775 while the spot gold price was down $36, according to Kitco's gold index.

Silver prices closed down $1.03 at $39.50 an ounce while the U.S. dollar index was falling 0.82% at $76.23.

Inflation in August rose 2% excluding food and energy and up to 3.8% overall. The Federal Reserve has an inflation target of 2% and three voting presidents at the last Federal Open Market Committee meeting were more concerned with high inflation rather than growth.

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The jump in prices might be enough to take monetary easing from the Fed off the table. It might also tie the Fed's hands as to its other options, like selling short term Treasuries and buying longer term ones.

The prospect of monetary easing was a green light to buy gold, but high inflation tempered that thesis Thursday. Even if there is no more quantitative easing, inflation is rising much faster than interest rates, still at 0%. As long as real interest rates -- interest rate minus inflation rate -- are negative, the dollar looses value while gold retains value.

The accelerated selling Thursday might also have been prompted by technical trading as traders are forced to sell positions to lock in profits when gold prices breach a certain level.

"Sell stops are being placed by funds looking at other assets as strong stocks are a headwind," says George Gero, senior vice president at RBC Capital Markets.

The Federal Reserve and European Central Bank swooped in Thursday to save struggling eurozone countries providing U.S. dollar loans to European banks in three installments to get them through the end of the year. The action buys leaders time to figure out how to keep struggling economies afloat.

As fears retreat, so do investors' need to own gold as a safe haven, but most experts are confident of higher prices.

David Nadel, co-portfolio manager of the Royce Global Value Fund(RIVFX), has held a 12%-15% weighting in precious-metals mining companies since 2007, and is still bullish on gold.

"The main issue with gold is its had this parabolic move and people are beginning to be concerned that this is an investment bubble," Nadel said. He thinks gold is far from a bubble due to the fact that is it under-owned.

"If you add up all of gold and all of the gold-mining companies it comprises less than 1% of global financial assets," whereas it has been 20%-30% in various times in history, according to Nadel.