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) --

Gold prices

were rebounding Friday as the market shrugged off the

Federal Reserve's

emergency lending rate hike.

Gold for April delivery was rising $6.30 to $1,125 an ounce at the Comex division of the New York Mercantile Exchange. Prices have traded as high as $1,127.40 and as low as $1,099.30. The

U.S. dollar index

was sinking 0.11% to $80.84.

Gold prices pared their losses Friday as they shook off the news that the

Federal Reserve

raised the

discount interest rate

by a quarter percent to 0.75%.

Also helping gold prices stage a come-back was the news that the core consumer price index fell 0.1% in January easing inflation expectations and worries that the Fed would raise key interest rates sooner than expected. Investors' risk appetite returned as they bought up dollar-backed commodities.

Earlier in trading, gold price fell as much as $8 as many investors anticipated an end to free money. Inflation has typically been a long-term driver for gold prices. Many investors from

George Soros


John Paulson

have been buying gold as lower interest rates and more money-printing could devalue the U.S. dollar in the long term.

If the Fed decides to aggressively fight inflation and raise interest rates, gold prices could come under pressure. "In the end, certainly for gold, I think it's real interest rates that matter most

which are now negative," says Jeffrey Nichols, senior economic adviser to Rosland Capital. "It's only when real interest rates turn positive, and significantly so, that it presents a meaningful tightening in monetary policy."

Gold prices found support around the $1,100-an-ounce area and still need to settle above the $1,125 resistance level. "The initial knee-jerk reaction in gold was a selloff," says Nichols. "From a technical point of view, if $1,100 holds up for a few days, I think the market is going to be poised for further growth in the months ahead."

Silver prices

were rising 39 cents to $16.45 while copper was up 7 cents to $3.35.

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Mining stocks, a more leveraged way to

invest in gold

, were mixed as the equity market digested the Fed news.

Barrick Gold


was rising 1.89% to $39.97, while

Newmont Mining

(NEM) - Get Free Report

was up 1.14% to $48.93.

Kinross Gold

(KGC) - Get Free Report

was falling 1.06% to $18.68 after the stock was downgraded to sector perform from outperform at RBC Capital.



was up 0.64% to $39.44.

Golden Star

(GSS) - Get Free Report

also was downgraded to hold from buy at Canaccord Adams. Shares were trading down 0.94% to $3.15.

Freeport McMoRan Copper & Gold

was higher by 1.27% to $77.57. That came after Scotia Capital initiated the stock with a sector perform rating.


(GLD) - Get Free Report

was rising 0.17% to $110.17.

>>Slideshow: How to Invest in Gold

>>More stories on gold investing


Written by Alix Steel in New York


Alix joined TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.