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) -- A weaker U.S. dollar boosted

gold prices

Monday as investors cheered France and Germany's commitment to a plan to recapitalize European banks.

Gold for December delivery settled up $31.10 at $1,670.80 an ounce at the Comex division of the New York Mercantile Exchange. The

gold price

has traded as high as $1,676.70 and as low as $1,639.90 an ounce, while the spot gold price was adding $34.70, according to Kitco's gold index.

Silver prices

rose 98 cents to $31.98 an ounce while the

U.S. dollar index

was losing 1.525% at $77.55.

The gold price and euro were rallying Monday as French President Sarkozy and German Chancellor Merkel agreed a plan should be set in place to shore up Europe's financial system. Although there are no details and numerous strategies, both leaders committed to unveiling a plan within three weeks designed to protect banks even if Greece defaults.

Vote: Where will gold prices finish in 2011?

The news lifted the euro and weighed on the dollar, which in turn boosted gold prices as they try to climb back to the $1,700 level. Also helping gold was strong physical buying from China as the markets reopened after a week long holiday.

"The metal continues to be underpinned by strong physical and retail investment demand," says James Moore, research analyst at "Gold for the time being continues to meet resistance around $1,653 and has stalled at $1680."

Vote: How High Will Silver Prices Go in 2011?

According to the latest commitment of traders report for the week ending October 4th, speculative short positions fell 12%, which signals gold's recent rally could be short covering as well as bargain hunting. Commerzbank also says that speculative net long positions fell for the sixth time in the past seven weeks, but the pace has slowed considerably. "This could indicate that the correction in the futures market is largely completed and that pressure on prices from this side is easing."

Any kind of correction in the stock market, however, could trigger profit taking in gold as traders need liquidity. "The level of net long positions is still significantly higher than after the correction of autumn 2008," wrote Commerzbank, "we therefore anticipate a risk of another downward movement in the gold price if the equity markets come under renewed pressure."

There are still enough looming macro questions that gold prices could continue to be underpinned by safe haven buying. Although Eurozone leaders have committed to coming up with a plan to shore up European banks, detail are scarce and each country has its own agenda.

Merkel wants the European Financial Stability Fund, or EFSF, to be a lender of last resort after private and government funding. Sarkozy wants the EFSF to backstop banks before governments in order to protect France's triple A credit rating. The whisper commentary, on the other hand, is that the European Central Bank might be forced to print more money to then lend to banks -- a bullish sign for gold.

"Heightened uncertainty over the state of the global economy, and Europe in particular," argues Barclays, "provide a gold-fertile backdrop and we retain our positive view on gold." Barclays sees $1,875 an ounce gold prices in the fourth quarter and a 2012 annual average of $2,000 an ounce.

Gold mining stocks

were gaining ground Monday.

Barrick Gold


was rising 2.6% to $47.85 while

Newmont Mining


was gaining 2.8% at $64.91. Other gold stocks,

AngolGold Ashanti





were moving higher at $41.12 and $47.58 respectively.

Related Articles:

How to Invest in Gold

Do Gold Prices Have Room to Rise?


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.