(Kitco News) - Precious metals prices continued their upward climb this week and the outlook for more gains is likely next week as ideas of more quantitative easing from the Federal Reserve remain at the forefront.

Still, traders do warn of the potential for profit-taking as gold and silver rest in rarified air, which could lead to sharp losses and volatile trade. Even if profit-taking occurs, the larger trend for precious metals remains up as the concerns over fiat currency and sovereign debt hold.

Thursday marked the end of the third quarter and the end of September. On the Comex division of the New York Mercantile Exchange, December palladium saw the biggest rise, up 13.8% for September and 28.3% for the quarter. December silver came next, up 12.3% for the month and 16.2% for the quarter and December platinum rose 8.5% and 7.5% respectively. For all its headline-grabbing appeal, gold’s gains compared to the rest of the complex were dead last and surprisingly similar, up 4.7% for month and 4.8% for the quarter for the December contract.

Thoughts that the Federal Reserve will do whatever it takes to support the U.S. economy got another boost Friday when New York Federal Reserve Bank Chairman William Dudley said the Fed will likely need to take “further action” if the U.S. economy stays frail.  That helped to push gold prices to a fresh nominal high of $1,322. December gold futures settled Friday at $1,317.80 an ounce, up 1.5% on the week.

“Gold has rallied because people have realized the Fed is keen to put into use quantitative easing policy in case the U.S. doesn’t see economic growth. It’s the Bernanke put option,” said Bart Melek, global commodity strategist with BMO Capital Markets.

Melek pointed out that the yield curve for U.S. Treasuries has flattened as the Fed buys longer-dated notes, making the opportunity cost of holding gold “not a problem.”

Gold is also prospering as countries practice a “beggar thy nation” approach to currency, by either talking down their currency or going so far as to intervene in foreign exchange markets like the Bank of Japan did earlier last month to weaken the yen.

“There are not great fundamentals behind this market, but at the same token, the currency war has taken over. Everyone is trying to devalue their currency and no one seems to win. That helps gold because it’s the one currency that can’t be devalued,” said Craig Ross, vice president of ApexFutures.com in Chicago.

Given the gains the yellow metal posted this week, the next round target is $1,325 an ounce, analysts said. Ross said $1,325 to $1,350 shouldn’t be ruled out next week.

China is closed for a holiday next week but left a parting gift: news that China’s PMI rose higher than expected, which gave financial markets a lift and also supported industrial metals like copper, silver and platinum group metals. “We’re not worried about the global economy faltering; the risk of the double-dip recession is lessening,” Melek said.

In the U.S. some key economic data is scheduled for release including factory orders and monthly unemployment figures. If those come in better than expected, it’s possible gold could wobble a bit. Analysts at MKS Finance pointed out that’s just what gold did earlier this week after positive U.S. economic news. After all, if the U.S. economy is growing, there’s no need for further quantitative easing.

The MKS analysts also pointed out that October can play some tricks on metals bulls. They said typically gold loses an average of 0.5% and silver 1.1%. While they are bullish on both metals because of macroeconomic uncertainty, a correction and consolidation phase is warranted. “The market seems mostly overbought for the moment and therefore, the more overbought the market is, the more violent the correction can be,” the MKS Finance analysts said.

Ross said if there is a break, a move to $1,280 is possible and a break could uncover further selling. However, he pointed out that corrections have been shallow and breaks viewed as buy opportunities.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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