NEW YORK, Dec 3 (Reuters): Gold's surge to its highest price in decades may be signaling growing inflation, but the upward pressures on prices are unlikely to match those in 1980, when gold hit its all-time peak, analysts said yesterday.
Gold traditionally has been seen by economists as a barometer of inflation-rising prices that erode the purchasing power of paper money - - as the metal has served as the currency of last resort for ages.
Gold yesterday rose to $506.50 an ounce, its highest level since February 1983. That follows a five-year rally from a near record low of $261 in 2001.
"I believe that the big swings in gold prices tend to reflect the underlying stance of monetary policy and gold above $500 an ounce" may be signaling an inflation problem, said John Ryding, chief U.S. economist at Bear Stearns.
Analysts have cited inflation fears as playing a major role in fueling gold's rise, especially over the past year, although gold's supply and demand fundamentals also have been positive.
Investors are increasingly turning to gold because "people are nervous about storing their wealth; there are a lot of danger signals out there," said Peter Schiff, president of Euro Pacific Capital in Darien, Connecticut.
"For a while, gold had kind of lost its monetary functions, and a lot of people had kind of forgotten about it, and I think now people are rediscovering it and rediscovering why gold is money," he said.
But U.S. data this week showed inflation may be under control, which might reassure some that the U.S. Federal Reserve may not have to raise interest rates much further to sooth inflation concerns.
The core personal consumption expenditure index-a gauge for inflation tracked by the Fed-rose at a slower pace in October than in the prior month, the Commerce Department said.
Inflation also looked to be lower than previously thought, according to a report on third-quarter U.S. gross domestic product.
The core consumer price index, which strips out volatile food and energy prices and is the Fed's favoured inflation measure, moved up less than expected. The index showed the lowest rate of core inflation in more than two years.
Nonetheless, many market watchers said that consumer prices have clearly risen in the past year, fueled by high energy prices, and that was lowering the buying power of the dollar.
"Raw materials prices and asset prices, particularly housing, are showing some inflation pressures, but you've got a lot of other forces at play that are suppressing goods inflation," said Alan Ruskin, research director at 4Cast Ltd.
Ruskin said the flow of inexpensive goods exported from China was one example that was essentially disinflationary for the economy.
In any case, no indications exist that inflation will return to the levels seen during the oil shock and recession of the 1970s that helped push gold to its peak around $850 in January 1980, analysts said.