Updated from 12:25 p.m. EST

Gold hit a multimonth high as news of continued softness in housing kept the dollar weak Thursday, but the upward momentum couldn't be sustained and the rally quickly fizzled.

April-dated bullion contracts dipped 10 cents to close at $654.40 an ounce on the Comex division of the New York Mercantile Exchange. Earlier in the session prices reached an intraday peak of $661 before retracing.

The exchange-traded funds that hold the metal also fell. The streetTracks Gold Shares ( GLD) was off 0.4%, and the iShares Comex Gold Trust ( IAU) was lower by 0.5%.

Spot prices in London traded at $651.75 earlier in the day, the strongest level since early August and up from $642.10 Wednesday.

Helping spur the initial gold buying was a report from the National Association of Realtors that December sales of existing dwellings fell to an annual rate of 6.22 million, down from a revised prior-month figure of 6.27 million. Expectations were for a modest increase to 6.3 million.

" The blood-letting in housing continues, although at a lessening pace," says T.J. Marta, a fixed income strategist at RBC Capital Markets in New York.

Other economic news showed higher-than expected new claims for unemployment insurance last week, likely due to seasonal factors working through the system. Warm weather was said to have kept prior claims data lower than they otherwise would have been.

The data contributed to downward pressure on the greenback, which was recently buying 120.96 yen, down from 121.11 yen late Wednesday. One euro would buy $1.2977, vs. $1.296 previously. The price of gold tends to move in the opposite direction to that of the U.S. currency.

Adding to the day's up-and-down activity were momentum investors chasing the trend.

Short-term traders were buying into strength, explains David Jones, chief market analyst at CMC Markets in London. But he noted that they would have placed stop-loss orders just below the market price to act as an insurance against sudden moves.

Consequently, once it became apparent that the rally wouldn't sustain itself, the strength quickly unwound as stops were triggered at successively lower levels.

Jones foresees meaningful resistance at around the $670 level for spot trades. That level is roughly equivalent to an April futures price of $680.

Meanwhile, in the gold patch, stocks followed the swings in the metal prices. The Amex Gold Bugs Index was down 1.6%. Component company Goldcorp ( GG) was lower by 1.8%.

Also sliding were shares of Meridian Gold ( MDG), falling 2.5% in recent action.

Turning to base metals, benchmark Comex copper contracts added 5 cents at $2.65 a pound. Shares of Southern Copper ( PCU) were rising 0.4%, helped by the advancing metal price.

As for ferrous metals, UBS upped its stock price target on Steel Dynamics ( STLD) to $40 a share from $37. The stock was recently rallying 4.1% at around $37.

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