NEW YORK (

TheStreet

) --

Gold prices

floated lower Wednesday on thinning volume and on the threat of more monetary tightening in China.

Gold for December delivery lost $4.60 to $1,373 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Wednesday has traded as high as $1,381 and as low as $1,368.70.

The

U.S. dollar index

was adding 0.14% to $79.80 while the euro was down 0.41% at $1.33 vs. the dollar. The spot gold price Wednesday was down $3.70, according to Kitco's gold index.

Gold prices lost steam after their $20 rally Tuesday as investors booked profits before the Thanksgiving holiday in the U.S. New reports also circulated that China would take stricter steps to combat raising inflation and curb growth.

Hu Xiaolian, a deputy governor of the central bank, said that the People's Bank of China would use "policy tools," among them raising interest rates, in 2010 to control lending. PBOC has already raised the amount banks must hold in their reserves five times this year, standing at more than 18% for large banks, but it has not taken enough money out of circulation.

The inflation rate in China is now 4.4%, above the 3% inflation target the central bank had set. Although the PBOC is anticipated to raise the inflation target to 4%, there will continue to be pressure to moderate growth.

Raising interest rates would be a more drastic step, and global markets have worried that tightening in China would hurt demand for commodities, especially copper, as infrastructure spending and construction slows.

In terms of gold, if it costs more to borrow money, Chinese consumers might be more hesitant to spend money to buy the metal. Also, gold is seen as a hedge against inflation and any steps to control inflation would disrupt that thesis.

"Given the more cautious mood amongst investors, gold will likely remain underpinned in the coming sessions," says James Moore, research analyst at

thebulliondesk.com

. "

The metals remain vulnerable to bouts of long liquidation."

Volatility could remain high as volumes thin and investors either want to book profits or buy gold as a safety net against negative news from Europe and North and South Korea over the holiday. Investors were also opting for stocks over gold as the Labor Department said inititial jobless claims last week fell 34,000 to 407,000.

The general feeling Wednesday is that Ireland will face problems passing spending cuts and tax hikes to secure a $115 billion financial bailout. The goal is to cut spending by $20 billion to shrink the deficit to 3% of gross domestic product by 2014.

Standard & Poor's

cut the country's debt rating to A from AA- and threatened further downgrades.

Investors are now turning more of their focus to the problems in Spain and Portugal. The interest rates the countries must pay in order to borrow money from the debt market rose again Tuesday. The yields on the 10-year Treasury were 7.02% for Portugal and 4.93% for Spain.

Portugal's economy, like Ireland's and Greece's, is much smaller, but

if Spain were to be frozen out of the debt markets, some analysts worry a bailout wouldn't be enough.

The uncertainty could provide a backdrop for higher gold prices if investors seek the safety of gold as protection against the struggling euro. "Some pre-holiday safe-haven buying towards bullion with distain towards the euro

is likely to see the traditional gold/dollar break down again and both move higher in tandem," says Moore.

Not all analysts are that positive -- some technicians are worried about substantially lower prices."It appears that the breakout in November after the FOMC meeting was a fake breakout," says Jeb Handwerger, editor of

GoldStockTrades.com

, "because it came on decreasing volume ...

and lower momentum."

Handwerger says the next few trading days will determine if gold will continue its uptrend or follow a head-and-shoulders pattern, something many technical traders have been looking for which would indicate a trend reversal and lower prices.

Silver prices

closed down 4 cents to $27.52 while copper added 5 cents to $3.75.

Image placeholder title

Gold mining stocks

, a risky but profitable way to

buy gold

, were mixed.

Freeport McMoRan Copper & Gold

(FCX) - Get Report

was adding 1.47% to $100.15 while

Goldcorp

(GG)

was flat at $45.74. Other gold stocks

Gold Fields

(GFI) - Get Report

and

New Gold

(NGD) - Get Report

were trading at $16.79 and $8.95, respectively.

--

(SYMBOL) by Alix Steel in

New York.

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