Gold Prices Rebound After Two-Day Dip (Update 1)

NEW YORK ( TheStreet ) -- Gold prices popped higher Tuesday, shaking off a two day decline that left the metal down 2%.

Gold for April delivery rose $23.50 to close at $1,748.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,750.30 and as low as $1,712.60 an ounce while the spot price was adding $28, according to Kitco's gold index.

Silver prices closed 44 cents higher at $34.19 an ounce while the U.S. dollar index was down 0.63% at $78.59.

A weaker U.S. dollar helped the gold price climb higher Tuesday. Gold first found support from a stronger euro, which got a boost after Greece raised 812.5 million euros over 6 months at slightly lower yields. The euro was also up on hopes that the Greek government could agree on austerity measures needed to secure a second bailout. Reportedly a plan is waiting to be signed by leadership. The optimism, despite a 24-hour strike in the country protesting 15,000 jobs cuts, was helping to boost gold.

Federal Reserve chairman, Ben Bernanke, also did his part to weigh on the dollar. In his testimony before the Senate Budget Committee, he still warned of a fiscal crisis despite recent good U.S. economic data. Bernanke focused on how far the labor market had to go to be in a full recovery mode, which basically seemed to reiterate the Fed's decision to leave interest rates low for an extended period of time. His commitment to a weak dollar policy helped gold.

" I think dollar weakness is the excuse," says George Gero, senior vice president at RBC Capital Markets, when discussing gold's rally today. "The Greek leaders meeting tomorrow may have good outcome moving the euro over 1.32" vs the dollar, which would also provide some short term support for the yellow metal.

Gold had been digesting the big 5.5% move prices had after the Federal Reserve announced low interest rates until the end of 2014. "I think the breakout we saw a couple of weeks ago is still holding up," says Stan Dash, vice president of applied technical analysis at TradeStation, who is monitoring $1,709 an ounce as a key support level. A close under $1,709 would signify a more dramatic selloff, "then I think you have to be more serious about a retest of $1,675 an ounce."

During the week after the Fed announced it would keep rates low for longer, speculative long positions on the Comex increased by 24,000 contracts. On the one hand it means traders are starting to rebuild long positions and will continue to do so if prices hold up. However, those traders could also contribute to any selloff if they have tight sell stops -- which is a predetermined selling level initiated in order to protect profits - they could have dumped their positions over the last few trading days accelerating the recent selloff. These traders might add extra juice to gold as it finds direction.

Gold took in stride the news that China only imported 38 tons of gold from Hong Kong in December, down 62% from November. This means that the country was not enticed by lower prices ahead of its New Year festival. On the flip side, China still wound up importing 427 tons of gold in 2011 and consuming 787 tons, which includes the 360 tons the country produced on its own.

"Chinese gold imports from Hong Kong tripled from 2010," says Mark O'Byrne, executive director at GoldCore, a bullion dealer. "There continues to be suspicions of Chinese official sector gold bullion buying." Frank Holmes, U.S. Global Investors CEO and chief investment officer, also says not to make too big a deal over the headline number.

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