Gold Prices Tick Up Despite Dollar's Rise

NEW YORK (TheStreet) -- Gold prices were rising Tuesday despite a stronger U.S. dollar as bargain hunters bought gold as an alternative asset.

Gold for February delivery was adding $1.90 to $1,097.60 an ounce at the Comex division of the New York Mercantile Exchange. Prices have traded as high as $1,103.20 and as low as $1,085.20. The U.S. dollar index was rising 0.43% to $78.53.

Risk appetite for commodities was on shaky ground Tuesday after Standard & Poor's announced it may lower its debt rating on Japan unless "measures can be taken to stem fiscal and deflationary pressures." There is also increased fear among investors that China could further restrict lending.

The country has already ordered its banks to tighten credit forcing them to raise their reserve ratios by 50 basis points, which comes into practice today. An end to free money in China, which is credited with stimulating the global economy, will boost the U.S. dollar and weaken investor demand for gold as an alternative asset.

Gold prices sunk as much as $10 earlier in trading, but bargain hunters bought gold at around the $1,080 support level. Some analysts predict more short-term downside. "[Gold] remain[s] vulnerable to dollar-related strength short term, although increased physical demand in gold should help provide some scaled-down support," says James Moore, analyst at thebulliondesk.com in his daily metals report. "A failure to hold the $1,074 low from December could see gold post a deeper correction back to $1038-62 channel."

Other precious metals came under pressure as China lending fears gripped the sector. Silver prices were slipping 50 cents to $16.63 while copper fell 5 cents to $3.34. Platinum was plummeting $24 to $1,522 while palladium was falling $12.75 to $427.25. The white metals are traditionally thinner markets and subject to more volatility.