NEW YORK ( TheStreet ) -- Gold prices failed to claw their way higher, even as the dollar fell and inflation in the U.S. crept up to 3.9%. Gold for December delivery closed down $5.80 at $1,647 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,666.90 and as low as $1,642.50 an ounce during the session, while the spot gold price was down $10, according to Kitco's gold index. Silver prices were lost 8 cents at $31.74 an ounce while the U.S. dollar index was 0.24% lower at $76.96.
Gold is still at the mercy of currency volatility. The euro was gaining steam against the dollar a day after the U.K.'s Guardian newspaper reported that France and Germany had agreed in principle to expand the bailout fund, EFSF, to 2 trillion euros. The fund would not expand in cash amount, leaving money printing off the table, but would use leverage, providing the first line of defense against any bond losses from struggling Eurozone countries.
"Gold is trying to break away from that correlation to the dollar ," says Will Rhind, head of U.S. operations for ETF Securities, "but is struggling ... We are looking for gold to try to reassert itself from a safe harbor perspective." The dollar lost some steam after data showed inflation in the U.S. rose to 3.9% in September, which means that real interest rates are almost a negative 4%. Gold typically does well when rates are negative -- the interest rate minus the inflation rate -- as the dollar loses value, making gold more attractive as a store of wealth. Overall, however, it seems like investors are using the dollar as the safe haven of choice and gold was unable hold on to earlier gains. "Minute-by-minute changes in headline news are causing see-sawing markets," says George Gero, senior vice president at RBC Capital Markets. That fate is unlikely to change anytime soon as Eurozone leaders prepare to meet October 23rd with a lot of pressure to "fix" Greece, banks and bondholders. "We are looking for a bit of a catalyst," says Rhind of ETF Securities, "People who are not in gold who are looking to get into the gold market right now are ... sitting on the side lines. But I think the investors that are in gold or that have been in gold aren't really fazed by it." ETF Securities has a slew of physically-backed products and Will says there has been no major shift in inflows or outflows in recent weeks. "The sentiment right now is people are waiting to see what happens and are repositioning themselves from a portfolio perspective ... around any other news over the next few weeks."