NEW YORK (TheStreet ) -- Gold prices were floating lower Wednesday on thinning volume and on the threat of more monetary tightening in China.
Gold for December delivery was losing $2.60 to $1,375 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 $1,370.40.
The U.S. dollar index was slipping slightly to $79.55 while the euro slid was flat at $1.33 vs. the dollar. The spot gold price Wednesday was down $1.10, according to Kitco's gold index.
Gold prices were losing 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."
