SAN FRANCISCO (CBS.MW) -- Gold futures dulled Friday, sending key sector indexes broadly lower, but prices for the precious metal closed higher on the week as traders largely keyed off movements in the dollar after a slew of U.S. economic data.

``Gold is the victim of relative dollar strength and seems likely to test $418,`` said Kevin Kerr, president of Kerr Trading International. However, he believes gold is ``finding support here and is unlikely to fall too much lower unless the dollar really finds legs and rallies hard.``

Gold for February delivery closed at $422.20 an ounce on the New York Mercantile Exchange, down $2.10 for the session.

The dollar weakened against the yen, but strengthened against the euro after Friday`s economic data painted a mixed picture. U.S. producer prices unexpectedly fell in December, while the nation`s business inventories jumped 1 percent in November and industrial output came in better than expected last month.

A pledge by President Bush to tackle the country`s deficits and hawkish comments by a Federal Reserve official also affected foreign-exchange trading.

For the week, the February gold contract finished higher by $3.50 an ounce, or 0.8 percent.

Nymex trading closed early Friday, ahead of the Martin Luther King Jr. holiday to be observed on Monday. Regular trading will resume Tuesday.

Reality vs. `delusion`

The bigger picture for gold futures remains bright, with Ned Schmidt, editor of the Value View Gold Report, predicting that prices will eventually reach the much-anticipated $500-an-ounce level.

``[The] reality is 60 billion green pieces of paper raining down on the foreign-exchange markets each month, and the end of the run for the U.S. stock market,`` he said.

At the same time, it`s a ``delusion`` for the market to be ``expecting the U.S. economy to continue to grow on top of a housing bubble, a collapsing currency and silly expectations that something will be done about the U.S. government budget deficit,`` he said.

At the end of the year, ``when gold is over $500, investors will wish they had gone with reality, and bought gold at current prices,`` he said.

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