NEW YORK (Reuters) - Gold prices rose on Friday, reversing declines in a choppy session, but buying related to short covering, inflation worries and geopolitical tensions trumped selling prompted by profit-taking and a strong dollar.
Spot gold rose to $1,112.50 an ounce in late New York trade from Thursday's late quote at $1,097.80 a tonne.
U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange rose $4.10 to settle at $1,111.50 an ounce.
Gold hit a session high of $1,118.10 an ounce on COMEX and traded near session highs until late.
Gold pushed into positive territory despite the dollar's gains on the euro. The U.S. currency was headed for its best weekly gain since April. <USD/>
The euro fell below $1.43 for the first time since early September before recovering some losses.
Strength in the U.S. unit usually curbs gold's appeal as an alternative investment, making the precious metal more expensive for holders of other currencies.
Inflationary implications of oil's rally also helped gold prices turn higher. Oil's rise above $73 a barrel added to other recent indications that the pace of inflation was starting to pick up.
U.S. crude futures rose nearly 1 percent in choppy pre-holiday trade on short cover buying ahead of Monday's January contract expiry, and cold weather across the U.S. and Europe.
Gold's appeal as a safe-haven play also came into focus after news spread of a dispute between Iran and Iraq, lifting oil prices as well.
Iraqi reported that 11 Iranian troops entered Iraqi territory, raising the Iranian flag at a disputed oilfield.
"Earlier margin selling (in gold) was overcome by Friday short covering, following Iran crude news," said George Gero at RBC Wealth Management in New York.
With players on both sides of the gold play heading into year end and setting up for early 2010 next week could also prove to be volatile, said analysts.
"Next week could be even more volatile as we approach year end and mark to the market of futures accounts," said Gero.
Heraeus trader Alexander Zumpfe said, "Some scrap selling stands against some investor buying, and that is keeping (gold) rangebound," Heraeus trader Alexander Zumpfe said.
Gold prices found support around $1,080-$1,100, but analysts say it may be vulnerable to further losses through to year-end, especially if further dollar strength is seen.
"Trading will be relatively thin in the coming days so investors may be reluctant to take on positions in this market, and may be closing some positions," said Commerzbank analyst Eugen Weinberg.
On the investment side of the market, Swiss bank Julius Baer (BAER.VX) said it expects to see an outflow of 30,000 ounces from its gold exchange-traded product on Friday.
In India, the world's biggest bullion consumer last year, spot gold prices fell on Friday as buyers continued to stay away expecting a further dip in prices, dealers said.
Among other precious metals, silver was bid at $17.27 an ounce against $17.13.
BNP Paribas lifted its silver price forecasts to $14.60 in 2009 an ounce from $14.40, and to $16.60 an ounce in 2010 from $15.10, citing higher gold prices.
"A stronger than expected rebound in global industrial production (IP) in the second half of this year and a further IP buoyancy in Asia in 2010 also underpin the upward revision to our silver price profiles," the bank said in a note.
Platinum rose to $1,428 an ounce against $1,421, and palladium picked up to $363.50 against $359.
(Additional reporting by Jan Harvey in London; Editing by David Gregorio)