(Kitco News) -- The precious metals rally is likely to continue into the first week of 2011 as the fundamental supports for the markets – concerns of Eurozone debt, fiscal and monetary stimulus in the U.S. and currency considerations – will remain steadfast.

While some market watchers warn that the potential for profit-taking in January is possible, many say strong demand under the market will limit significant losses and won’t change the long-term bullish trend.

Friday, February gold on the Comex division of the New York Mercantile Exchange settled at $1,421.40 an ounce up 2.96% on the week.  On the year, nearby gold futures gained 29.79%.

Comex March silver settled at $30.937 an ounce, a gain of 5.49% on the week. Nearby silver futures gained 83.9% on the year.  Although gold made record highs in 2010, silver remains more than 35% below its nominal high of $50 an ounce set in 1980, Gold Core said.

Platinum and palladium futures also saw sharp gains this year. Nearby platinum futures gained 20.6% this year and nearby palladium futures rose 96.48%.

Gold Core said gold’s firmer close for the year is the 10th consecutive year of rising prices. In U.S. dollar terms it rose 28%, while it gained 34.5% in sterling and 38% in euro terms.

“This shows how the price of gold is not rising per se rather fiat currencies are losing purchasing power and being devalued internationally. This increases the attraction of precious metals and hard assets that are finite and cannot be debased as inflation hedges – especially gold and more volatile silver,” they said.

Commodities in general saw a strong rally into the last few weeks of the year, spurred on by hopes of economic strength and thus the need for resources. Metals like copper, silver and the platinum group metals rose sharply – with copper making record highs – bringing gold along for the rally.

“The wind is at silver’s back. When there’s good (economic) news, it runs up because of the feeling that demand will be higher. When there’s bad news, people run to it for flight to safety,” said Bob Haberkorn , senior market strategists, Lind-Waldock.

Haberkorn said silver’s rise through $30 an ounce was “huge” for the metal’s continuing rally. He said next week’s goal for silver bulls is for the grey metal to start building a base at the $30 area. That will give it a shot to trade up to $32 quickly, he added.

Tom Pawlicki, precious metals analyst at MF Global, said he has a neutral-to-positive outlook for gold into the first week of the New Year. He said he expects traders will want to add to winning positions of 2010. Resistance for February gold futures on the Comex division of the New York Mercantile Exchange is at the high of $1,432.50 an ounce made Dec. 7.

Haberkorn said February gold has resistance at $1,420 and sees support at $1,394-95. If prices allow a move back that far, that’s a good level to add to positions, using market stops for protection, he added.

Next week brings one of the more important economic reports, the December unemployment data, due for release Jan. 7. After November’s lower-than-expected jobs growth, analysts are keen to see if that figure was an outlier or the start of a trend. A bearish figure could support gold prices.

One event to watch for in the early weeks of January is commodity index rebalancing which usually takes place in the first two weeks or so of the New Year. The major commodity indexes like the GSCI and the CRB will readjust the weightings of the various commodities in the indexes during that time and traders who follow the indexes will need to adjust. Depending on what those weightings are, it can sometimes lead to temporary caps or floors for individual markets.

Peter Thomas, director of business development at PFG Precious Metals, said don’t rule out the chance of a price pull back in early January simply on profit-taking  once traders are back at their desks.  There’s been absolutely no resistance,” because of the light trading volumes common around this time, he said. He’s still positive on precious metals, especially as gold and silver act as currencies, rather than shiny objects to stick in a drawer. “The entire game has changed,” he said.

Furthermore, he said, now with the International Monetary Fund finished with its gold sales there aren’t any large apparent sellers to keep a cap on prices. His outlook for gold for 2011 is for it to go sideways to higher, with prices trading between $100 on either side of current values.  The physical market has been quiet during the holidays, as is normal, he said, but also partially because of the East Coast snow storm has limited movements to vaults. Product is getting sold, he said, but transfers to vaults will need to wait until roads are cleared.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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