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Gold prices

rose Tuesday as investors bought the metal as protection against Europe's debt crisis.

Gold for February delivery, now the most actively traded contract, settled up $18.60 at $1,386.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,391.10 and as low as $1,364 during Tuesday's session.


U.S. dollar index

was adding 0.39% to $81.16, a 10-week high, while the euro lost another 1.13% to $1.29 vs. the dollar. The spot gold price Tuesday was rising $19.40, according to Kitco's gold index.

Gold prices and the U.S. dollar were rising in a flight to safety. The euro broke below its 200-day moving average as investors continued to dump the currency on fears that Europe's debt woes will spread to Italy, Spain, Portugal and Belgium. Despite reassurances that only bonds issued after 2013 would be affected if an insolvent country needed a bailout, current bondholders were still worried they would be on the hook if a country took financial aid.

The amount of interest struggling countries have to pay to get a loan rose across the board. The yield on the 10-year treasury bond in Portugal swelled to 7.28% Monday, as the country sweetened the pot for investors, while the German bund was yielding 2.74%.

The Bank of Portugal wasn't helping the euro either, warning in its mid-year report that its inability to borrow cheaply from the debt market posed "serious challenges" to its financial system. The lack of money along with new capital rules from Basel III, in which banks are required to hold more money in their reserves to help protect against losses, "reinforce the recessionary pressures on economic activity."


later in the day echoed these worries and put the country's debt ratings on Watch Negative.

The uncertainty in Europe was good for gold as investors opted for the safe-haven metal over "risky" paper currencies or volatile stocks. In typical safe-haven fashion, gold prices were up double digits but the U.S. dollar was also benefiting from safe-haven buying and the strong currency could temper gold's gains.

"If we can close above $1,380 that would change us from sideways to down to sideways to up," said Jeff Friedman, senior market strategist at Lind-Waldock earlier in the day. "If we have a pullback I am definitely a buyer ... I am looking at $1,351 and $1,340 and definitely $1,325. I do not believe we are going to break $1,300 ... I think the low is in for the month of November and December."

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Friedman believes the most important item on the agenda this week for gold will be Friday's unemployment report for November.

is expecting private sector jobs to grow by 175,000 versus 159,000 in October. The number "shows the health of the economy in the U.S.," says Friedman and will directly impact the dollar.

Gold and the U.S. dollar typically trade inversely to each other although investors can buck this trend when the flight to safety heats up.

Gold prices are in store for more volatility until the end of the year as profit-takers contend with "bargain-hunters" and those wanting to add gold to their portfolio before the new year. During December, those traders selling gold future contracts must also deliver physical gold and the longs must pony up the cash which increases liquidity and volatility in the market.

George Gero, vice president at RBC Capital Markets, says prices "may hit temporary resistance here and a correction may ensue, but the trend is your friend according to floor traders."

Gold prices will also look overseas for direction. India reported annualized growth in the July to September quarter of 8.9%, compared to 2.5% growth in the U.S. Growth estimates for the full year have been revised to 8.75%.

With India growing at a gang-buster rate, investors are now worried that India and China, also reporting explosive growth, might be forced to raise key interest rates to combat inflation and regulate expansion. Higher interest rates would make it more expensive to borrow money and decrease the country's purchasing power.

China and India are both credited with supporting physical global gold demand and being instrumental in higher prices. In the third quarter, jewelry demand in India grew 36% and 8% in China totaling 285.8 tons, about a third of total identifiable gold demand, according to the World Gold Council.

A decrease in purchasing power or less personal savings in China and India could damage the countries' historical propensity to buy gold jewelry as gifts during wedding and festival seasons.

Silver prices

closed $1.01 higher at $28.21 on the March contract on the Comex while copper was up 5 cents at $3.82.

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Gold mining stocks

, a risky but potentially profitable way to

buy gold

, were higher.



was up 1.91% to $45.93 while


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was one of the leaders today. Shares were 2.98% higher at $14.52. Other large gold stocks

Freeport McMoRan Copper & Gold

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Gold Fields

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were trading at $102.75 and $16.80, respectively.


Written by Alix Steel in New York.

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Alix Steel


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