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Gold Bulls Display Mettle

News of rising inflation in the U.S. and cautionary comments from Federal Reserve Vice Chairman Donald Kohn had gold futures surging Wednesday.

Contracts for April delivery of gold closed $23 higher at $684 an ounce on the Comex divison of the New York Mercantile Exchange. The bullion exhange-traded funds that hold the metal, streetTracks Gold Shares (GLD) and iShares Comex Gold Trust (IAU), were litfting also, up 3% recently.

The Labor Department says its consumer price index rose 0.2% during January, twice the consensus forecast of a 0.1% increase but down from 0.4% in December. The core rate, which excludes the volatile food and energy components, advanced 0.3% vs. expectations of a 0.2% rise, and up from 0.1% previously.

"The upside surprise in the headline and core number will keep the market a bit on edge until we get to see the personal consumption expenditure deflator next week," writes Joe Brusuelas, chief U.S. economist at IDEAglobal in New York, in a research brief.

The not-so-tame CPI data likely increased investor interest from those looking to buy gold as a hedge against a generally rising price level. Bullion had a significant downturn Tuesday, as spot prices dropped $10 in London.

But what really stoked things up appeared to be a comment from the Fed's Kohn who said: "It would be imprudent to rule out sharp movements in asset prices and deterioration in market liquidity," that could test the resiliency of the financial system.

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