Weak Dollar Keeps Floor Under Gold Prices

NEW YORK (TheStreet ) – Gold prices were stalling out Wednesday as a weak U.S. dollar kept a floor under prices while profit-taking capped gains.

Gold for February delivery was flat at $1,655.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,659.70 and as low as $1,643.90 an ounce while the spot price was up $2.70, according to Kitco’s gold index.

Silver prices were adding 9 cents at $30.23 an ounce while the U.S. dollar index was down 0.41% at $80.76.

Gold prices were stuck in neutral after prices jumped 1.5% on Tuesday. According to Kitco’s gold index, a strong U.S. dollar was pushing prices up $8 while profit-taking was pushing prices $5 lower leading to a net gain of $3, which means it was not strong buying buoying prices but dollar weakness.

Gold will continue to remain hostage to the euro as any good news out of Europe lifts the currency, weighs on the dollar and helps gold. The euro was boosted Wednesday on reports that the International Monetary Fund is hoping to expand its lending resources by $1 trillion to provide a bigger backstop for global economies dealing with the direct and indirect effects of Europe’s sovereign debt crisis. The IMF is looking towards emerging market countries like China to be the big lenders.

“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 bond 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.