NEW YORK, Jan 3, (Agencies): 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.

Inflation
Gold is often used as a hedge against inflation and a weak dollar, but it is uncertain how the US currency will fare in 2009. While inflation is a concern now that the Federal Reserve has sent US 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.

Base Metals: Base metals prices rebounded this week after traumatic losses last year.
Copper, which had struck an all-time high of $8,675 per tonne on July 2, 2008, plummeted to $2,817 on Dec 24 — which was last seen in October 2004. Zinc also hit a four-year trough in November.
Aluminium, which set a record high $3,380 per tonne on July 11, dived to a five-year low of $1,430.50 per tonne on Dec 18.
Tin was another casualty, sliding in December to $9,700 per tonne, which was last seen in November 2006.
The metal had touched a historic high of $25,500 in May 2008, supported by dwindling global supplies and production problems in Indonesia.
Lead, meanwhile, sank in December to $851 per tonne, matching a level last seen in September 2005.

By Friday, copper for delivery in three months jumped to $3,169 a tonne on the London Metal Exchange from 2,870.25 on Dec 19.
Three-month aluminium rallied to $1,535 a tonne from $1,490.
Three-month lead advanced to $1,080 a tonne from $891.
Three-month zinc rose to $1,251 a tonne from $1,105.
Three-month tin gained to $11,500 a tonne from $10,415.
Three-month nickel increased to $12,875 a tonne from $10,100.
Cocoa: Cocoa futures fell this week but found support in 2008 from a tight global supplies.

London cocoa prices had hit a record high of £1,822 per tonne on Dec 19. The previous day, New York prices stretched as high as $2,718 a tonne — the highest since last September. Grains and soya: Grains and soya prices held steady but remained far below record highs touched last year. By Friday on the Chicago Board of Trade, maize for delivery in March dipped to $4.04 a bushel from $4.12 the previous week. March-dated soyabean meal — used in animal feed — firmed to $9.81 from $9.56.