By Tatyana Shumsky
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Comex gold futures crept higher Tuesday as a worse-than-expected inflation report in the U.K. spurred safe-haven demand for gold.

The thinly traded February-delivery contract was recently up 0.8%, or $10.80, at $1,375.40 per troy ounce on the Comex division of the New York Mercantile Exchange.

The most actively traded contract, for April delivery, was recently up 0.8%, or $10.70, at $1,375.80 per troy ounce.

The U.K.'s annual rate of inflation rose to 4.0% in January, from 3.7% in December, double the Bank of England's target.

Gold prices rallied on the news, with investors scurrying to purchase the precious metal, which is considered a hedge against inflation and a store of value.

Rising inflation rates in Europe are fanning similar concerns across the Atlantic, as U.S. based investors position themselves for Thursday's consumer price index for January.

"It's only a matter of time, when you hold interest rates at these lows levels, that inflation rears its ugly head," said Matt Zeman, head of trading at LaSalle Futures in Chicago. "That's going to have people scrambling for that inflation hedge and they're going to go to hard assets like gold and oil."

Gold prices have rallied around 25% since last year as central banks in Europe and the U.S. kept interest rates near zero and injected additional liquidity into the financial system in a bid to spur economic recovery. But these programs also risk driving up inflation rates, leading many investors to seek safe harbor in gold.

"Money is being put in to gold - it's part of an investment package right now and for decades it wasn't," Scott Meyers, senior trading analyst with Pioneer Futures.

-By Tatyana Shumsky, Dow Jones Newswires; 212-416-3095; tatyana.shumsky@dowjones.com

Source: http://online.wsj.com/article/BT-CO-20110215-709860.html