(Kitco News) - A rising dollar, worries over a potential hike in Chinese interest rates, along with some short-term technical chart signals weighed on precious metals Friday and the weaker trend could influence trade next week.

December gold futures prices on the Comex division of the New York Mercantile Exchange ended at $1,365.50 an ounce on the week, a drop of 2.3%. Silver fell 3%, to $25.942 an ounce.

The dollar has been on an upslope this week as concerns over Eurozone debt, specifically Ireland’s woes, caused some investors to abandon riskier assets and return to the U.S. dollar, which lost a bit of its “unloved” status. Investors are very heavily short the dollar. Whether they are simply unraveling some of that bearishness or if the dollar is set for a change in direction, the greenback could rise a fair amount since it has been pummeled so much lately. That could pressure gold, analysts said.

“We had quite a range in gold. Gold never came back off the bottom, and it’s been trading the dollar,” said Charles Nedoss, senior market strategists at Olympus Futures.

Commodities across the board were hit by worries over a potential Chinese rate hike. There was no actual rate hike, but after strong economic data out of the Asian nation Thursday, analysts are beginning to ponder the chance of another hike. “Should it (a rate hike) indeed come to pass, (it) will likely trigger a substantial selloff in most commodity complexes, and likely spill over into the US equity market as well. Whether we are in the throes of such a correction remains to be seen, as we have seen previous selloffs come and go without making much of a dent in the overall rally,” said Ed Meir, analyst at MF Global. “…this is not an enticing environment for the metals rally to flourish in, and today’s selloff should be viewed as a shot across the bow in this regard.”

One sign that gold’s recent rally might be due for a correction also came from the Comex exchange data. After setting a record high level in open interest on Wednesday, open interest from Thursday fell. George Gero, vice president, Global Futures, RBC Capital Markets and precious metals strategist, said that means the rally came on short covering, rather than new buying, indicating there was less new business.

Mark Leibovit, chief market strategist at VR Gold Letter.com, said he sees gold and silver as having a short-term top. “We could be in a corrective phase, but it’s temporary. It could be a week, a month, or just a few days,” he said.

Support for gold is seen at $1,325, Leibovit said, with support for silver is at $25 and then $19.50. Nedoss said the $25 area is “hard” support.

“Silver has a little more downside to go. We so juiced this market, it went parabolic over the last week and this week. We could see a pull back to $25 in the December contract.  That’s the 20-day moving average. There’s hard support at $25,” Nedoss said.

Leibovit said the short-term downtrend for gold could be in place until other technical chart signals suggest otherwise. “We’re still overbought. I’ll look for indicators such as being oversold, volume and upside reversal patterns” before considering the decline done.

He added that since gold and silver are in a seasonally strong time, downward price corrections could be short-lived.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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