Gold Prices Ease As Dollar Makes Gains

December gold slipped $1 to $674.40 an ounce on the New York Mercantile Exchange, while the December silver contract dropped 6.7 cents to $11.94 an ounce.

The relationship between the U.S. dollar and the euro -- closely watched by precious metals investors who want to hedge against inflation -- has grown increasingly volatile in recent weeks amid unfolding problems in the credit markets and storminess in U.S. and European stock markets. Those developments have altered investors' bets about the direction of key central bank interest rates on both sides of the Atlantic.

"(Gold market) participants were clearly on hold with significant trades until they get validation from the Fed about its interest rate intentions," said Jon Nadler, senior analyst with Kitco Bullion Dealers, in a client note.

Interest rates are an important support for currency values. In the U.S., investors have become more expectant of a cut in the Federal Reserve's benchmark interest rate, which has been stagnant for more than a year at 5.25 percent. But in Europe, where interest rates have been rising, analysts have raised doubts that the European Central Bank will boost its benchmark rate further.