NEW YORK ( TheStreet) -- 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 to 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."

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