NEW YORK ( TheStreet ) -- Gold prices fell from record highs Thursday as investors took profits while awaiting a debt deal from Washington.

Gold for December delivery, the most actively traded contract today, closed down $1.10 to $1,616.20 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,622.80 and as low as $1,605 while the spot gold price was down $1.10, according to Kitco's gold index.

Silver prices lost 77 cents to $39.79 an ounce. Silver was trading more as an industrial metal, subject to slowing global growth, versus a safe haven asset. The U.S. dollar index was adding 0.14% at $74.20 while the euro was shedding 0.42% vs. the dollar.

EU debt fears were trumping U.S. debt fears for the moment, which was helping the dollar, after the S&P cut Greece's credit rating further into junk territory with a negative outlook signaling more downgrades were possible. A surprising decline in people filing for unemployment claims for the week ended July 21st was also boosting the dollar.

The relatively stronger dollar, along with bargain hunting in stocks, was crimping any safe haven rally in gold but prices were supported above the $1,600 level as a default come August 2nd seems possible. Investors were also opting for profits ahead of more debt ceiling debate. The House is set to vote on Speaker Boehner's revised debt plan Thursday, although Senate Democrats have already united to block it.

"There remains severe concerns current deficit reduction are not enough to avoid default," says James Moore, research analyst at FastMarkets, "with ratings agency Standard & Poor's requiring a $4 trillion reduction commitment over 10-years."

Moore thinks that big investors are sitting on the sidelines as a default would be unchartered territory for financial markets. There is the concern that in case of a default investors will dump and run from all assets including gold.

The collapse of Lehman Brothers in 2008 provides a good example. From the beginning of September 2008, when reports of Lehman bankruptcy circulated with force until the end of 2008, the S&P sold off 36.1%, whereas gold lost 1.65%. In the first quarter of 2009, gold rallied more than 6% while the S&P fell a further 12.96%.

A two percentage decline for gold from current levels would put prices somewhere within the $1,575-$1,580 an ounce range, still record territory.

Tim Harvey, senior vice president of ETF Securities, says gold will sell off a bit in case of a default "but how far it comes off is another matter." Harvey thinks it could be a case of gold retrenching and then going higher. "All we are trying to do now is fix how we are going to be able to spend a bit more cash not how we are going to fix paying this huge amount of debt we have."

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