NEW YORK (TheStreet ) – Gold prices were popping Tuesday as spooked investors bought gold as a safety net against geopolitical unrest and a falling euro.

Gold for August delivery, the most actively traded contract, was adding $11.40 to $1,226.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Tuesday has traded as high as $1,230.60 and as low as $1,211.60. The U.S. dollar index was rising 0.06% to $86.52 while the euro was sinking 0.23% to $1.22 against the dollar. The spot gold price Tuesday was adding over $8, according to Kitco’s gold index.

Gold prices were rising double digits after traders digested the news of Spain’s debt downgrade by Fitch. The announcement that the ratings agency lowered its rating from AAA to AA, with a stable outlook, came on Friday as many traders were already on vacation for the long holiday weekend. Investors traded out of stocks and some gold positions in order to have cash on hand for the weekend. Now traders are putting the cash to work in gold as a safe-haven asset. The euro fell to its lowest level in over four years and many experts are still anticipating parity with the dollar.

Also supporting higher gold prices was Israel’s attack on the flotilla of aid relief ships, which broke a blockade to bring supplies to Gaza and left nine people dead. The ramp-up of violence in an already tumultuous region buoyed gold prices as gold retained its appeal as a hedge against a financial and military crisis.

Gold prices have broken the critical $1,220 level and are now eyeing its old record high of $1,249 an ounce. Two factors waiting in the wings to drag on gold prices are an economic slowdown in China and weakening physical demand from India.

Why Gold Prices Will Hit $1,300

Suresh Hundia, head of Bombay Bullion Association, told Reuters that India’s gold imports fell 39% in May as prices hit new highs. India is typically very price sensitive and focused on silver and recycled gold during its strong gold-buying Hindu festival.

Investors are still concerned over an economic slowdown in China. China has been taking steps to control its ballooning real estate business as well as restricting the amount of money in circulation after reporting a 11.9% growth in the first-quarter. The government has raised the reserve requirement for banks three times in the last seven months and these steps coupled with slowing export demand from Europe due to the sovereign debt crisis could shrink China’s economy more than expected.

Although over the long run, worries about a China slowdown could weigh on gold prices, some analysts think they could actually push prices to $1,300. “In the short run … people want to get into something that’s tangible,” says Adam Klopfenstein, senior market strategist at Lind-Waldock. “If people are looking at asset classes that are vulnerable to a correction, the name of the game in the short run is getting into something they believe is a flight to quality mechanism like gold.”

“I think after the first correction I think $1,250 you’ll see a few people back off … but I think you’ll see it trade above $1,300 in 2010.”

Silver prices were rising 7 cents to $18.50 while copper was sinking 4 cents to $3.05.

Gold mining stocks, a more risky and more profitable way to invest in gold, were higher. Barrick Gold was rising 3.37% to $43.50 while Newmont Mining was adding over 2.5% to $55.38. Other large gold miners AngloGold Ashanti and Goldcorp were trading higher at $42.49 and $44.09, respectively.

Shares of Freeport McMoran Copper & Gold were trading over 2% lower in tandem with copper prices while Southern Copper was losing almost 2% at $28.94.

Shares of the gold ETF, SPDR Gold Trust were rising 0.82 $119.86.

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