There's nothing like a little inflation talk to bring out the gold bugs.
But analysts say even the prospect of slightly higher-than-expected U.S. inflation readings after Wednesday's higher-than-expected April PPI won't be much of a catalyst for prices, and could actually hold back gains.
Helped by a falling dollar and weaker global equities prices, gold rose Wednesday above the key psychological level of $1,300, a zone that often attracts buying. The August gold futures contract was at about $1,305 per troy ounce, while the front-month June futures contract on Comex was at $1,304.
"The PPI is a mixed bag for gold. On the one hand, inflation is a positive for gold because it suggests money could flow out of paper assets into hard assets, so that's bullish but the bearish part of the PPI is it could induce the Fed to continue its tapering on an even more aggressive pace," said Jim Wyckoff, senior analyst at Kitco.
Wednesday's reading of PPI showed producer prices rose 0.6 percent in April, well above the 0.2 percent expected. The reading follows a higher reading for March, and the year on year rate is now running at 2.1 percent. Traders are watching to see if some of this will feed into Thursday's Consumer Price Index, expected to rise 0.3 percent.
But some analysts said gold could continue to struggle near-term, but if it holds a higher range it may begin to edge higher. Gold hit a six-month low at the end of last year, trading at $1,181 on Dec. 31. Since then it has gained 10.5 percent.
"I think in the near-term, it's probably going to...break back below $1,300," said Howard Wen, precious metals analyst at HSBC. "We have CPI tomorrow...Normally if CPI data is high that would be a positive for gold but that could be a negative because of the Fed's linking of inflation and unemployment to monetary policy. The Fed is concerned about a lack of inflation. Ironically, if it's below expectations, that would be a positive for gold."
While the market watches CPI, the Fed's favored inflation guide is PCE, or the personal consumption expenditures index. Core PCE inflation was running at 1.2 percent on a year ago basis in March.
Wyckoff said gold was moving because of the dollar and short covering. "It may be a little bit of safe haven buying, although the Russia, Ukraine situation—traders, investors are a little numb to it," he said.
Wyckoff said some of the data coming out of Europe could be viewed as deflationary. Earlier Wednesday, French consumer price inflation was reported at flat, and Germany actually declined 0.2 percent in April.
He said the gold market has been stalled out as bears and bulls duke it out, and that rising equities were a negative for the asset class.
"The gold market has been in a downtrend on a near-term basis," he said, noting the bulls have pushed the market to a more attractive level technically.
"We pushed above the 200-day moving average...We pushed above it Monday," he said. He noted the market extended gains after crossing $1,301.10 and could move sideways to possibly higher. "We are right now in a choppy trading range, and we have been for the past three weeks. If we can push prices above last week's high of $1,315.80, in the June futures contract, that would be a bullish upside breakout and would suggest the trend is sideways to higher."
Kevin Grady, president of Phoenix Futures and Options, said if gold can settle above $1,325, it will attract more longs.
"We're starting to see some longs coming into the market, which is a good sign. The key is those longs have to push us above the levels where serious longs will start to come in—the hedge funds. The value investors are here," he said.
"I think if the market does sell off, even to the $1,250/1,260 (level), I think you'll see some serious buyer around those levels," Grady said.
—By CNBC's Patti Domm.