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Gold Prices Volatile, Eye $1,300

NEW YORK ( TheStreet) -- Gold prices are moving to $1,300 an ounce on inflation worries, rumor of quantitative easing round II from the Federal Reserve and a lackluster global economy.

Gold for December delivery Friday settled $3.70 higher to $1,277.50 an ounce on the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,284.40, another record, and as low as $1,273. The U.S. dollar index was adding 0.13% to $81.36 while the euro was down 0.22% to $1.30 vs. the dollar. The spot gold price was adding 90 cents, according to Kitco's gold index.

Gold prices lost some steam Friday as the U.S's weak inflation reading tempered inflation fears that have been bubbling up around the globe. The U.S. consumer price index for August was unchanged from July but this was in opposition to a higher-than-expected producer price index reading on Thursday. The U.K. reported a higher inflation reading this week and India's central bank is taking steps to take money out of circulation to fight inflation.

Friday is also quadruple witching in which options on stock index futures, stock options, stock index options and stock futures all expire, leaving traders having to rebalance their portfolios. This leads to more volatility especially in the gold market.

But the real reasons gold is breaking to new highs right now are hedge funds and the Federal Reserve. The Fed will meet Tuesday to discuss interest rates, and although no changes are expected, the rumor is that the Fed will run its printing presses and issue another round of monetary easing. A low inflation reading in the U.S. might also give the Fed a green light to pump more money into the system.

Although there have been reports that the Fed will do no such thing because the governors can't come to a consensus, the conviction and gold's monster rally tell a different story.

The other factor moving gold prices is hedge fund buying. Strong double-digit gains like the market saw on Tuesday always point to big purchases. Many experts say that gold will inevitably hit $1,300 as "it seems very likely that the funds have decided that this is the next target," says Jon Nadler, senior analyst at Kitco.com.

Of course, fund buying leaves the room for fund selling. If funds are buying gold as protection against more quantitative easing then what happens if the printing presses never run and the crisis premium comes out of the market? A $30 move up could result in a $30 selling frenzy.

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