) --

Gold prices

climbed higher Wednesday along with the euro, building on their 11% January rally.

Gold for February delivery closed up $9.10 at $1,749.50 an ounce at the Comex division of the New York Mercantile Exchange. The

gold price

has traded as high as $1,754 and as low as $1,735.40 an ounce while the spot price was adding $9, according to Kitco's gold index.

Silver prices

rose 54 cents to close at $33.80 an ounce while the

U.S. dollar index

was down 0.48% at $78.90.

Gold prices were adding to their January gains Wednesday as the dollar fell against the euro. The Automatic Data Processing employment report showed that the private sector added just 170,000 jobs in January, which was less than expected, and revised December's whopping 325,000 private job gain down to 292,000. The lackluster reading underscored the Federal Reserve's commitment to keep rates low until the end of 2014. Extended low rates have been a catalyst for gold.

Vote: Where will gold prices finish in 2012?

Based on

Deutsche Bank

's estimates, the Fed won't look to tighten monetary policy until the unemployment rate is at least 7.6% or lower. The firm, however, does think the rate could fall more quickly than expected which would force the Fed's hand.

"Over the past four months, the unemployment rate has declined 0.6%," said Deutsche Bank in a recent note. "This has only happened 7 times before, and over the ensuing 12 months the unemployment rate on average has fallen by another 0.8%." The firm says policy makers could be in for a big surprise.

Martin Murenbeeld, chief economist at Dundee Wealth, thinks the Fed will stick to its long term rate forecast as he sees no big strength in the U.S. economy. "I don't see restrictive monetary policy," he says also speculating the Fed would do another quantitative easing program, or QE.

"If there is an implosion in the banking sector in Europe, the Fed is going to put money into the system to make sure U.S. banks are secure." Murenbeeld also thinks the Fed might take additional steps to prop up the housing market especially if Washington follows suit.

Although the Fed has increased the M2 supply -- money in circulation plus savings, checking and travelers checks -- by $2 trillion since the start of 2008, the money hasn't really made it into circulation, resulting in weak inflation. Murenbeeld says however that asset prices have seen inflation and that gold is "agnostic in terms of where inflation is."

Murenbeeld thinks gold could spike to $2,000 an ounce this year, but won't average that price as a stronger dollar could be a headwind if gold and the euro maintain their positive correlation. "On a day to day basis it appears what the euro does is what gold is going to do," he says, but "if you look at that correlation over the past couple of years it really breaks down," which means investors can't count on that correlation always being a negative for gold. Murenbeeld says the longer term correlation between the two assets is actually zero. "Net net European problems will be positive for gold

even though there could be shocks on the negative side."

Adding further pressure on the dollar Wednesday and further helping gold was some positive news out of Europe. Portugal raised 1.5 billion euros at lower yields. Although demand was somewhat tepid, the lower interest payments were a relief as the country's borrowing costs have been on the rise on speculation the country might need a second bailout. Germany also raised more than 4 billion euros over 10 years at an average yield of 1.82% lower than the previous auction. Demand, however as well, was a little light.

The euro also gained vs. the dollar on reports that Greece would reach a final deal with private bondholders on what kind of loss they would have to take in their debt swap deal. Bondholders are exchanging old debt for new debt and might take a loss of more than 70%. Greece and investors were also debating the interest payment on the new debt. Reports indicate it might be a 3.75% compromise.

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Gold had a big run in January, up 11%, and some experts are bracing for a possible profit taking pullback. "Eight weeks up for gold is probably a stretch now and ripe for something to happen to induce some profit taking," says George Gero, senior vice president at RBC Capital Markets, "but the technical and fundamentals don't signal a reversal."

Gold mining stocks

were volatile Wednesday.

Kinross Gold

(KGC) - Get Kinross Gold Corporation Report

was slightly lower at $11.25 while

Yamana Gold

(AUY) - Get Yamana Gold Inc. Report

was 0.2% lower at $61.36.

Other gold stocks,


(AEM) - Get Agnico Eagle Mines Limited Report


Eldorado Gold

(EGO) - Get Eldorado Gold Corporation Report

were trading mixed at $37.46 and $15.15, respectively.


Written by Alix Steel in

New York.

>To contact the writer of this article, click here:

Alix Steel


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