NEW YORK ( TheStreet ) -- Gold prices were losing steam Wednesday on the back of a stronger U.S. dollar.

Gold for April delivery was falling $2 to $1,120.50 an ounce at the Comex division of the New York Mercantile Exchange. Prices have traded as high as $1,133.90 and as low as $1,120. The U.S. dollar index was higher by 0.04% to $79.70. Gold's spot price was falling $6.30 according to Kitco's gold index.

Gold Will Stop Consolidating

Gold was paring its monster gains from Tuesday, when prices added over $20, on cooling inflation fears. The Federal Reserve said it would leave interest rates unchanged at zero to 0.25%. The Fed gave no indication of when it would raise rates as previously anticipated, but instead reiterated its promise to keep rates low "for an extended period." This extended the flow of free money but also indicated that the Fed believes inflation is stable.

Also cooling gold's rally was the Labor Department's report that year-over-year, the core producer price index was unchanged at 1%. Inflation did not pick up in February, which helped the U.S. dollar rally but weighed on gold prices.

Gold might see some short-term downside as it retains its inverse correlation to the U.S. dollar. According to The Associated Press, the European Union has warned that some of its member countries' growth targets are too optimistic. Actual budget deficits could be worse than expected if economic recovery disappoints. The news could pressure the euro, boost the dollar and hurt gold prices.

"I think there has been a slight change in sentiment," says Nicholas Brooks, head of research and investment strategy for ETF Securities. "Investors who have been buying gold with an idea that inflation might become an issue are stepping back, or at least traders are moving in anticipation of that. I think on a medium-term basis the upward trend is likely to continue. It's pretty clear that the sovereign risk issue is not going to go away anytime soon. ... I think these kind of issues are going to increase demand for gold."

Silver prices were holding onto gains adding 10 cents to $17.46 while copper was up 5 cents to $3.41.

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Mining stocks, a more leveraged way to invest in gold, were mixed. Barrick Gold ( ABX) was rising slightly to $40.17, while Newmont Mining ( NEM) was lower by 0.49% to $51.09. Other large-cap miners Kinross Gold ( KGC) and Goldcorp ( GG) were trading at $18.08 and $39.72, respectively.

Shares of Freeport McMoRan Copper & Gold ( FCX) were falling 1.34% to $81.07 while Yamana Gold ( AUY) was trading at $10.18.

Shares of the popular physically backed ETF SPDR Gold Shares ( GLD) were slightly lower at $109.71.

-- Written by Alix Steel in New York.
Alix joined TheStreet.com TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.