A Chinese Gold Standard?

Gold and silver settle higher as consumer prices rise in the U.S. and rumors circulate that China may be beefing up its gold stores to back its currency.

Higher consumer prices in the U.S. and unconfirmed reports that China is seeking to beef up its currency, the yuan, by backing it with gold bullion helped move gold prices higher Thursday.

Gold for April delivery gained $10 to settle at $1385.10 an ounce at the Comex Division of the New York Mercantile Exchange. The spot gold price was adding $8.50, according to Kitco's gold index.

Silver prices closed up 94 cents to $31.51, settling above the $31.50 resistance area -- the metal's highest level in 25 years -- which could be a green light for bullish silver traders headed into Friday.

Leading today's charge was news that year-over-year domestic inflation grew to 1.6%. Excluding food and energy prices, the Consumer Price Index was still up 1% on the year. Although still below the Federal Reserve's 2% inflation target rate, the surge was enough to prompt traders to buy gold and silver as an inflation hedge.

Jon Nadler, senior analyst at Kitco.com, says it's entirely possible gold prices could hit $1,400, but not on inflation data alone. "I think the spread of the societal unrest in the Middle East and North Africa might contribute more to gold bids."

Turmoil kept spreading throughout the region on Thursday as protester deaths mounted in Bahrain and Iran tried to get two warships passed through the Suez Canal.

Meanwhile, China's grab for gold is accelerating at a rapid pace, and it's raising questions about the country's ultimate intentions. China consumed 175.2 tons of gold in the fourth-quarter of 2010, bringing its grand total for the year to 579.5 tons, or 18.5 million ounces, according to the World Gold Council.

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