Gold Prices Stall Despite Weak Dollar (Update 2)

NEW YORK (TheStreet ) -- Gold prices eked out a small gain Wednesday as a weak U.S. dollar and technical buying kept a floor under prices, while profit-taking capped any hope for big gains.

Gold for February delivery closed up $4.30 at $1,659.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,662.90 and as low as $1,642.10 an ounce while the spot price was adding $6, according to Kitco's gold index.

Silver prices rose 40 cents to close at $30.54 an ounce while the U.S. dollar index was down 0.66% at $80.56.

Gold prices were stuck in neutral for most of trading. Prices jumped 1.5% on Tuesday, triggering early morning profit taking today, but then traders stepped up to buy gold at a discount price. For the most part, however, the majority of the move can be attributed to a weak U.S. dollar. According to Kitco's gold index, a strong U.S. dollar was pushing prices up almost $12 while profit-taking was pushing prices almost $5 lower leading to a net gain of $6.70.

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It's "wait and see for gold now," says George Gero, senior vice president at RBC Capital Management. "Traders will look for more technical clues of open interest [long positions]." Gero says the $1,625-$1,650 area is holding and that there is a possible breakout over the $1,675 an ounce level. Gero noted that open interest climbed today which is helping momentum traders, or technical traders, to take another look at buying gold.

Gold has been trying to shake off its positive correlation with the euro as the currency is rallying Wednesday. However, significant downside in the euro could hurt gold, while a significant decline in the U.S. dollar could help the metal.

The euro was boosted Wednesday on reports that the International Monetary Fund is looking to expand its lending resources to $885 billion from its current level of $385 billion. The move is aimed at providing a bigger backstop for global economies dealing with the effects of Europe's sovereign debt crisis. The Washington-based lender, led by Christine Lagarde, is pushing Brazil, Russia, India and China -- together known as the BRIC nations -- as well as Japan and oil-exporting nations to be the top contributors, Bloomberg reported, citing an anonymous source.

In general "gold is moving up because Europe hasn't solved its problems," said Adrian Day, president of Adrian Day Asset Management, and that means "more easy money." Fitch ratings agency is also threatening to downgrade Italy's credit rating by two notches, which means borrowing costs will rise, putting more pressure on the European Central Bank to provide funding.

Although the bank cannot lend money directly to governments, it can buy bonds from other banks. It can also provide unlimited loans for three years at low rates to banks. Including national central banks and the ECB, Europe's balance sheet grew by €729 billion since mid-August, but most of the money is winding up parked back at the ECB as bank deposits are at a record high of more than €500 billion.