Gold Rebounds for Higher Close

Updated from 11:24 a.m. EST

Gold futures overcame a slow start and a firmer dollar to end trading modestly to the upside Friday.

April delivery bullion contracts climbed $1.40 to $672.80 an ounce on the Comex division of the New York Mercantile Exchange. The PowerShares DB exchange-traded fund (DGL Quote), which follows futures prices, dipped 0.3%.

Despite Commerce Department data showing that housing starts fell much more than expected in January, the news wasn't reflected in a lower dollar. That may be due to a change in the way the market is viewing potential actions by the Federal Reserve toward fighting inflation.

Fed Chairman Ben Bernanke presented two days of economic testimony to the U.S. Senate Wednesday and the House on Thursday in which he carefully outlined his views.

The market now sees Bernanke as targeting inflation alone and not in conjunction with unemployment, explains says Joseph Brusuelas, chief economist at IDEAglobal, in New York. "If there is any cyclical change in expectations, then you could see a swing in market sentiment toward higher rates."

Such news would be bullish for the greenback and bearish for gold, which tends to move lower in value when the dollar strengthens.

One euro was recently selling for $1.314, down from $1.3145 late Thursday. One dollar was buying 119.26 yen, up from 119.22 yen previously.

Elsewhere, the Economic Cycle Research Institute published data showing a 3.5% rise in its weekly leading index in the period ended Feb. 9, marking the 17th straight uptick. ECRI says the indicator grew a revised 4.3% in the prior period. Although the trend is still one of growth, the last two data points could show the beginnings of a deceleration pattern, or a slower rate of increase.

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