Gold prices dip

NEW YORK (AP) - Gold prices edged lower in light post-holiday trading Friday as the dollar showed some strength against other major currencies.

Despite the slight dip, analysts were quick to note that the metal continues to show underlying strength as investors harbor fears of rising inflation.

George Gero, vice president at RBC Capital Markets Global Futures in New York, attributed Friday's decline in gold to some minor profit taking and short covering ahead of the weekend.

"Most people were more interested in book-squaring today, and not having positions be carried over for the weekend,'' he said.

Gold prices have been trending upward after dropping in mid-November due to heavy selling by hedge funds and other large investors.

Though still far from the $1,033.90 record high reached in March, gold managed to end the year up 5.4 percent.

"Looming on the horizon is a tremendous increase in money supply, which could in many countries weaken currency, so there has been underlying support for gold,'' Gero said.

Gold is often used as a hedge against inflation and a weak dollar, but it is uncertain how the U.S. currency will fare in 2009.

While inflation is a concern now that the Federal Reserve has sent U.S. interest rates about as low as they can go, central banks across Europe and Asia are also eyeing interest rate cuts.

This would further undermine their own currencies and potentially give the greenback a boost.

On Friday, the dollar rose against the euro and the British pound, but fell against the Japanese yen.

Gold for February delivery fell $4.80 to settle at $879.50 an ounce on the New York Mercantile Exchange.

Other precious metals prices advanced. March silver rose 19.5 cents to $11.49 an ounce, while March copper futures rose 5.1 cents to $1.4610 a pound.

On Wall Street, investors brushed off a weak report on manufacturing and sent stocks higher in light trading.

The Institute for Supply Management said Friday that its manufacturing activity index fell to the lowest level in 28 years in December - much worse than economists had expected.

But the reading did little to discourage investors, who have recently been looking past downbeat 2008 data and instead looking ahead for signs that the recession isn't worsening.

The Dow Jones industrial average rose 258 points to 9,034, its first close above 9,000 in two months.

Meanwhile, bond prices fell as investors bought up riskier assets.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.41 percent from 2.22 percent late Wednesday.

Energy prices rebounded on the Nymex, boosted by expectations that OPEC will carry out its largest production cut ever.

The Organization of the Petroleum Exporting Countries, which accounts for about 40 percent of global supply, has announced production cuts totaling more than 4 million barrels per day in the last few months.

Ongoing violence in Gaza also sent prices higher.

Light, sweet crude for February delivery rose $1.74 to settle at $46.34 a barrel.

One year ago Friday, crude prices surpassed $100 a barrel for the first time - beginning a climb that would peak at more than $147 a barrel by July.

Prices have since tumbled on fears of waning global demand amid a deepening recession.

In other Nymex trading, gasoline futures rose 3.15 cents to $1.0935 a gallon, while heating oil rose 3 cents to $1.472 a gallon.

Grain prices mostly rose on the Chicago Board of Trade, boosted in part by the climb in crude prices.

March wheat futures inched up 0.25 cent to $6.11 a bushel, while corn for March delivery rose 5.25 cents to $4.1225 a bushel.

March soybeans slipped 3 cents to $9.77 a bushel.