NEW YORK (

TheStreet

) --

Gold prices

fought their way higher Tuesday, buoyed by a weaker U.S. dollar and strong safe haven buying.

Gold for December delivery jumped $23.80 to close at $1,702.40 an ounce at the Comex division of the New York Mercantile Exchange. The

gold price

has traded as high as $1,705.60 and as low as $1,667.50 an ounce while the spot price was adding $22, according to Kitco's gold index.

Silver prices

were rising $1.64 at $32.76 an ounce while the

U.S. dollar index

was down 0.11% at $78.27.

Gold prices were popping Tuesday after a brutal one-day selloff. Despite Monday's 2.7% correction the

SPDR Gold Shares

(GLD) - Get Report

shed less than 2 tons of gold, which means many investors hung onto their gold positions. Deutsche Bank also noted that precious metal Exchange Traded Products recorded large inflows last week with $1.5 billion flowing into gold products, which pointed to fear buying.

Vote: Where will gold prices finish in 2011?

"Fundamentally, gold is not looking that bad at all, especially were risk aversion to escalate, with investors returning to the ultimate safe haven asset," wrote VTB Capital in a recent note. Gold will still be subject to bouts of liquidation as investors need to raise cash and as a stronger dollar -- boosted by a weaker euro and woes in Europe -- keeps pressure on gold.

Gold prices were further helped throughout the day after the International Monetary Fund announced an increased lending facility for some eurozone countries. Countries that qualify can borrow anywhere from 5 to 10 times its quota amount -- that is the amount it contributes to the IMF -- from 6 months to two years. Although it is a lifeline, countries have to prove their credit worthiness before they can access funds so there are doubts as to how much the IMF can really help. Safe haven buying continued in gold unperturbed.

Gold was also digesting the news that more monetary easing was discussed at the Federal Reserve's last meeting. Members noted that unemployment would decline, but slowly, and that inflation would fall from its current 3.5% level. Low prices and high unemployment could be a recipe for another round of quantitative easing. A few members even said that the economic outlook might warrant more accommodative policies.

Any sign the Fed would be willing to pump more money into the system by buying more Treasuries or mortgage backed securities would be a big boost for gold. Fighting deflation with inflation would underscore gold as a safe place to stash cash as currencies lose value.

"We still believe in limited losses for gold here," wrote VTB Capital, "with buyers quickly returning after the ongoing price correction."

Anthony Neglia, president of Tower Trading is more cautious. He is watching the $1,605 level and would look to buy long positions at that area.

"I think everybody for this long weekend will more or less just take a step back and see what happens after the holiday," says Neglia. Options expire for gold today, which means traders either let contracts expire or exercise them, which leads to a flurry of activity and potential volatility.

George Gero, senior vice president at RBC Capital Markets, is watching the option shakeout very closely. "Tomorrow is important to look at how many abandoned options and/or extra futures in commodity accounts appear."

If calls are in the money -- meaning that the trader can buy a gold futures contract at a lower price than gold is currently trading at -- it means there are more traders betting on a higher gold price. Conversely, with gold around $1,700 traders will be unlikely to exercise a put option, meaning they won't bet against the gold price. Gero does warn of increased volatility as traders dump any excess positions.

Investors were also looking for some cover Tuesday after the second read on third quarter growth in the U.S. came in lower than expected at 2% and as three and six months borrowing costs in Spain doubled since October.

Gold mining stocks

were recovering from a brutal selloff Monday.

Yamana Gold

(AUY) - Get Report

was rebounding 2.39% to $48.75 while

AngloGold Ashanti

(AU) - Get Report

was adding 0.14% at $65.75. Other gold stocks,

Agnico-Eagle

(AEM) - Get Report

and

Eldorado Gold

(EGO) - Get Report

were trading higher at $43.36 and $17.37, respectively.

--

Written by Alix Steel in

New York.

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

Alix Steel

.

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