Capital Gold Group Report: Inflation Fears Boost Gold Prices

--Written by Alix Steel in New York.

12/16/09 - 09:57 AM EST

 Inflation worries shook markets after the producer price index jumped 1.8% in November. During times of inflation, the U.S. dollar loses value and investors buy gold as an alternative asset buoying prices. Investors are also waiting on the result of the Federal Reserve's FOMC meeting. The Fed is expected to keep interest rates low for now but there is a growing consensus that the Fed will raise rates sooner than expected to combat growing inflation.

Analysts expect gold to stay in a tight range of $1,110 to $1,140 for the end of the year as profit taking and bargain hunting restrict prices. "I think we're seeing light volume in the market as a start", says Will Rhind, head of U.S. operations at ETF Securities. "Expect to see more concentration on inflation numbers over the next year as people look for any signs of consumer prices in the real economy."

The U.S. dollar index was slipping .13% to $76.82 and inversely gold prices were up $9 to $1,132 at the Comex division at the New York Mercantile Exchange. Gold deliver for February has traded as high as $1,136.10 and as low as $1,122.40.

Silver prices were rising 8 cents to $17.53 while copper was up 3 cents to $3.17.

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