NEW YORK ( TheStreet ) -- Gold prices settled higher Wednesday after a hot inflation reading in the U.S.

Gold for December delivery settled up $8.80 to $1,793.80 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,797.60 and as low as $1,781.60 while the spot gold price was up $5.30, according to Kitco's gold index.

Silver prices closed up 53 cents to $40.35 an ounce while the U.S. dollar index was down 0.41% at $73.69.

Gold prices managed to close at a record high after stalling out for most of trading. Equities turned lower on weak volume and a disappointing quarterly report from Dell, which helped boost gold. Bloomberg also reported that Venezuelan President Hugo Chavez is preparing to nationalize the gold mining industry to abolish illegal mining, which could be adding supply crunch fears to buying.

Inflation worries also created a backdrop for higher gold prices. The U.S. said producer prices rose 7.2% year-over-year in July while core prices, excluding food and energy, rose 2.5%. The hot inflation reading ahead of the consumer price index Thursday provided a modest boost to gold.

George Gero, senior vice president at RBC Capital Markets, says "gold still being bought as a hedge against portfolio jitters" -- this was despite lackluster buying in early trading. "Momentum traders are still friendly to the metals. Until and unless we see the portfolio assets improve here and in the eurozone the gold buyers will remain active."

Gero does note that silver prices are catching up. Silver has lagged gold as it is half a safe haven metal and half an industrial metal which could suffer from a worldwide slowdown.

Will Rhind, head of US Operations for ETF Securities, says that there have been more inflows this week into ETFS Physical Platinum Shares ( PPLT) and ETFS Physical Silver Shares ( SIVR). "Perhaps this means that some of our clients are now looking at a prospect of a recovery and are looking at the white metals instead of gold."

Anthony Neglia, president of Tower Trading, who trades both gold and silver says that if gold can hold above $1,800 for a week, then investors might start looking to silver. "I think silver will trade in sympathy with gold if gold catches a bid up above $1,800 just for the safe haven purposes." Neglia doesn't think industrial demand will be a catalyst to get silver over the pivotal $40 an ounce level, where he is short below and long above.

Although gold is making moves towards the $1,800 level, strong physical buying might be a game changer. The middle of August through the end of December is historically a strong buying period for gold as a series of festivals in India trigger jewelry purchases. On average, over the past 11 years, gold has risen 11% during that time frame, which would bring current prices to $1,989 an ounce.

The wild card this time around is high prices. Will consumers pay up for gold or buy less, opt for scrap or move into silver as a cheaper alternative? "That's difficult to predict at this stage but going back to the basic principle of what's driving gold at the moment and its primarily the investor buyers out of Europe, the U.S. and Asia looking ... to protect themselves against paper currencies." Historically gold jewelry buyers from price sensitive countries like India wait for a dip in gold to buy until they get comfortable with higher prices.

Gold mining stocks were rallying along with gold. Kinross Gold ( KGC) was up 1% at $16.73 while Yamana Gold ( AUY) was adding 1.97% at $15.54. Other gold stocks, Agnico-Eagle ( AEM) and Eldorado Gold ( EGO) were trading at $64.12 and $19.48, respectively.

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-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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