Gold higher on weak dollar.

Gold firmed on the last trading day of the year, gearing toward its strongest annual gain in three years, supported by a languishing dollar and a firm outlook for precious metals into 2011.

The precious metals complex has had a stellar run this year, led by palladium's 95 percent rise, in a broad commodities rally which has pushed up the 19-commodity CRB index up 15 percent.

The dollar fell 0.4 percent against a basket of currencies .DXY. It is about 12 percent lower against the yen and more than 9 percent down versus the Swiss franc this year.

"It is still a positive picture for metals next year. There is sufficient demand from investment perspective to maintain a relatively bullish trend, in gold in particular,"

In a sign that breathes caution into the euphoria, the holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to 1,280.722 tonnes by Dec 30, its lowest since early June.

"The story is still relatively bullish on metals, but they ain't cheap. Gold's not cheap."