Gold Prices Pop, Silver Settles Above $30

NEW YORK (TheStreet) -- Gold prices Tuesday shrugged off another rate hike from China as technical trading dominated the market.

Gold for April delivery added $15.90 to $1,364.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,368.70 and as low as $1,348.90. The spot gold price was up more than $11, according to Kitco's gold index.

The U.S. dollar index was slipping 0.11% to $77.96 while the euro rallied 0.37% to $1.36 versus the dollar. The euro was getting support from a successful bond auction in Greece, where the country raised money for 6 months at an average yield of 4.64% versus 4.90%.

Gold prices were unfazed by China's decision to raise key interest rates by 25 basis points, the third move since October 2010. China has been trying to take baby steps to fight rising inflation, which is currently 4.6%.

Typically an interest rate hike would drag on gold. As paper money gains more value, gold becomes a less appealing place to put money. Gold also does well in a negative interest rate environment, which is the interest rate minus the inflation rate. Using the one year deposit rate, even with the hike, China still has a negative rate of 1.6%.

Vote: Where will gold prices finish in 2011?

China's New Year holiday ends today so it will be interesting to note if physical gold buyers in China will be deterred by higher rates or if rampant gold buying will continue. If today is any indication, Chinese buyers will jump into the market. Just by the mere fact that China is forced to raise rates because of inflation brings the buzz word into the foreground which is supporting prices.

The inflation validation "brought more funds to gold back after the $1,360 area was surpassed," says George Gero, senior vice president at RBC capital Markets. Not only were momentum buyers enticed by the rally but traders needing to cover their short positions also jumped at the opportunity.

Prices "aren't completely falling out which means there is some support in the market," says Phil Streible, senior market strategist at Lind-Waldock. "The 150 day moving average is holding strong ... I think the health of the gold investor has gotten a lot better over the last week."

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