Gold futures drop on stronger dollar

SAN FRANCISCO (MarketWatch) � Gold quit a 3-day winning streak Friday on strength in the U.S. dollar spurred by concerns over Europe credit, but gained for the week as data showed strong Chinese demand for the precious metal.

Other metals also closed lower. Copper rallied 5.8% for the week.

Gold for February delivery �ended down $16.90 an ounce, or 1%, at $1,630.80 an ounce on the Comex division of the New York Mercantile Exchange, after sinking as low as $1,625.70 an ounce.

Gold futures prices gained 2.5% in the three sessions ended Thursday and still closed the week up 0.9%.

�The downward sentiment is focused on a stronger dollar and some short- term profit taking,� said Jeff Wright, a precious-metals analyst with Global Hunter Securities.

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The dollar index DXY , which tracks the U.S. unit against a basket of six major rivals, reversed Thursday�s losses and traded at 81.518, up from 81.313 late Thursday. The euro EURUSD fell more than 1% against the greenback to $1.2664. Read more on currencies.

Driving up the dollar and weighing on U.S. and European stocks and the broader commodities market, news reports said ratings agency Standard & Poor�s was set to announce later Friday that it had cut France�s triple-A rating. The French finance minister reportedly confirmed that France has lost the blue-chip rating. Read more on expected downgrades.

There�s a �sharp rally in the U.S. dollar index due to increased worry of weakness in euro,� said Darin Newsom, senior analyst at Telvent DTN, said of Friday�s shift lower.

Demand for gold, which is traded in U.S. dollars, tends to weaken when the dollar strengthens. More broadly, extraordinary stimulus measures by the Federal Reserve since the 2007-08 financial crisis have encouraged investors to buy gold as a hedge against a devaluation of the dollar.

But gold had enough momentum from the previous sessions -- touching a nearly one-month high in the process -- to close the week higher. Gains were partly stoked by news that Chinese buyers had snapped up gold in November. Read more on China and gold imports.

For the week ahead, Global Hunter�s Wright indicated he�ll be looking for any additional signs of inflation and cues from the Europe debt crisis. The situation with Iran � which is in a face-off with the West over its nuclear program and military activities in the Strait of Hormuz, a key supply choke point � �will continue to be a flash point but unlikely to escalate further,� he wrote in an email.

Copper's comeback March copper

U.S. financial markets are closed Monday for the Martin Luther King Jr. holiday.

The wider metals complex tracked gold lower, with silver posting the heaviest losses.

Silver for March delivery �lost 60 cents, or 2%, to end at $29.52 an ounce. On Thursday, silver climbed to a four-week high but got pulled down Friday as some traders booked profits, analysts at Commerzbank wrote in a note. It rose 3% for the week.

�Because precious-metal ETFs have recorded hardly any inflows in recent days, the rise in prices is likely to have been driven among other things by speculative financial investors,� they said.

March palladium �dropped $6.2, or 1%, to close at $635.05 an ounce, while April platinum �fell $11.30, or 0.8%, to end at $1,488.80 an ounce.

March copper �gave up 1 cents, or 0.3%, to close at $3.64 a pound.

The metal, which is highly correlated to economic growth expectations, rallied for the week, had its best week since early December. China, the biggest consumer of copper, also drove action in the metal after economic data bolstered expectations that the People�s Bank of China could adopt a more accommodative approach to monetary policy, analysts said.

�Copper continues to surge on speculation of further monetary easing from the PBOC,� wrote analysts at CMC Markets.