Chicago -- (Kitco News) --A series of U.S. economic reports will help drive gold’s direction next week and could be a factor to whether the yellow metal tries to take out the nominal all-time highs or pulls back to test recent support.

Manufacturing data in the form of the Empire State Index and the Philadelphia Federal Reserve’s index and the producer and consumer price index reports, which measure inflation, will be released next week. After some recent better-than-expected economic news, like Thursday’s jobless claims, market watchers will be keen to see if this trend continues.

If the economic data turns out to be better than expected, gold prices might be capped for the time being, said Robin Bhar, senior metals analyst with Credit Agricole CIB.

Spot and Comex futures gold prices got above $1,260 an ounce this week because of renewed concerns about European debt, a Wall Street Journal story that said European bank stress tests were understated and a German banking association comment that suggested banks there needed more capital. Prices were unable to test the all time nominal highs around $1,266 and pulled back when U.S. economic news was better than expected. Further, volume in the markets slowed Thursday and Friday because of the start of the Jewish New Year, causing many market participants to take time off.

Whether prices retest the highs or pull back in part depends on the economic data, but also on the action of the U.S. dollar, Bhar said. The dollar has still played a bit of a safe-haven role when the markets quiver, but has sold off when economic news has turned positive as traders return to riskier assets.

Spencer Patton, founder of Steel Vine Investments, said he sees gold in a “topping process” in the intermediate term, especially since it was unable to take out the all-time highs. He believes the flight-to-safety rally gold enjoyed earlier this week was a bit overdone and prices could come back. “We’ve reached a peak for now. I could see gold in a sideways trend, but it shouldn’t fall beneath $1,200,” he said.

Gold received a bit of a bounce Friday after the International Monetary Fund said it sold 10 metric tons of gold to Bangladesh, which traders took as a positive sign that Asian central banks are willing to add to gold reserves.

Even so, Bhar said, he believes that for gold to test the nominal all-time highs, it will take a push by speculators to do so. Given that the yellow metal was only about $10 from that high, there might be interest in taking it out if momentum goes that way. However, he’s cautious about how gold might act after that event.  “Every time we’ve made a new high, gold tends to lose $20 or $30. There are a lot of longs in the market who are ready to take profits,” he said.

Patton said while in the near term he thinks gold has plateaued, the market will likely rebound toward the end of the year as the factors that are keeping gold underpinned remain, such as European debt concerns and accommodative monetary policy. “Goldman Sachs is talking $1,300 by year’s end and that’s possible,” he said.

One market that might benefit from any gold strength is silver, which has rallied lately in an “also-ran” fashion. “If you like gold, you might buy silver. It’s cheaper compared to other metals and even if it pulls back you, won’t lose much,” he said.

Although he sees silver rising as a by-product of gold strength, that doesn’t mean he’s very bullish on the metal. He said the fact the fundamentals don’t support a rally – silver remains in surplus with producers ready to sell at higher prices – means he doesn’t see the gray metal going much past $20 an ounce.  He added, though, if copper can rally on positive economic news, silver could get an extra bump up for the industrial component.

By Debbie Carlson, of Kitco News;dcarlson@kitco.com.

Editor’s Note: Meet the Kitco News Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration www.kitcoeconf.com.

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