Gold sinks as Greece, Bernanke lift dollar

Gold futures sank on Wednesday as the dollar regained some safe-haven strength as European lawmakers delayed a decision to address Greek's debt problems.

Gold for April delivery fell $2.70, or 0.3%, at $1,074.50 an ounce in electronic trade in New York.

On Tuesday, gold rallied as talk of a German plan to rescue Greece led stocks to soar, removing safe-haven demand for the dollar and lifting commodities.

But the dollar gained some strength early Tuesday. The dollar index (INDEX:DXY) , which tracks the performance of the greenback against a basket of currencies, rose to 80.031 from 79.768 late in the prior session.

A meeting between the German finance minister, Wolfgang Schaeuble, and law makers, ended on Wednesday without any concrete package of Greek aid announced. Expectations remain for a package to be announced on Thursday.

Also helping lift the dollar, Federal Reserve Chairman Ben Bernanke said in written testimony that the Fed may raise the discount rate. While Bernanke clearly explained this would not be a monetary tightening, the speech still confirmed the Fed's plans to unwind its extraordinary liquidity-boosting measures.

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"The Fed is carefully laying the ground work to begin tightening policy, but is not expected to act for quite a while longer," said Michael Gregory, senior economist at BMO Capital Markets, in note.

The dollar also advanced even after the government reported the U.S. trade deficit widened to $40.2 billion in December from $36.4 billion the month before.

A weaker dollar tends to boost gold and metals as it makes them cheaper for holders of other currencies. Gold also loses its appeal as a hedge against weaker currencies.

For gold, the "technical situation remains bearish after its recent break down below previous support $1,075 an ounce," analysts at GoldCore wrote in a note. "However, there would appear to be strong support at the $1,000 to $1,030-ounce price level which was the previous strong resistance."

Among other metals Wednesday, copper for March fell 2 cents, or 0.6%, to $2.97 a pound. Silver for March delivery dropped 18 cents, or 1.2%, to $15.26 an ounce.

March palladium dropped $4.90, or 1.2%, to $411.70 an ounce, while platinum for April gained $5.30, or 0.4%, to $1,507.70 an ounce.