(Kitco News) - Gold and silver's rally into the end of the week and continued unrest in North Africa and the Middle East is expected to give precious metals a firm start for next week's trading.

The situation in Libya remains unsettled and so market analysts said precious metals prices will continue to add some risk premium even as gold and silver trade to new highs. A weakening U.S. dollar only adds support to metals values, they mentioned.

Friday, April gold futures on the Comex division of the New York Mercantile Exchange settled at $1,428.60 an ounce, up 1.37% on the week, while May silver settled at $33.82 an ounce, up 4.266% on the week.

Going into the weekend precious metals are finding support because of the lingering unrest in Libya, said Mike Zarembski, futures analyst with optionsXpress. The markets will also watch for protests expected in Saudi Arabia and whether those escalate. With Saudi Arabia being the lead member of OPEC there are concerns about oil supply if anything happens to disrupt production. "They are the juggernaut," Zaremski said, adding that the risk premium in metals could grow and moves to safe-havens such as the Swiss Franc and U.S. Treasury bonds could occur if protests turn violent.

Adrian Day, president of Adrian Day Asset Management, said there's no real reason to sell metals here.

"Despite the market trading at record prices, I don't see any reason to sell here with everything that's going around in the world. Right now the Middle East, specifically Libya, has everyone's attention. With that kind of situation you don't want  to sell. We don't know how it will unfold – you don't want chaos – but you don't know how things will develop," Day said.

Gold stumbled Thursday after European Central Bank President Trichet said the central bank may raise interest rates as early as April. On the surface higher interest rates are negative for precious metals, but Day pointed out that it's necessary to look at whether the level of real interest rates are rising. Further, it's important to see if the moves to tighten credit lag inflation, are concurrent with inflation or are steps to get ahead of inflation.

So far moves by China, India and other countries that have hiked interest rates are at most concurrent with inflation, Day said, whereas the U.S. is lagging inflation. Europe may be trying to get ahead of inflation considering Trichet's comments, he said. "The U.S. is clearly lagging inflation. I'm not one of those who sees hyperinflation around the corner. Japan's situation is not totally dissimilar to what is going on and their interest rates have stayed low. Rates can stay low a lot longer than we think and inflation can stay subdued longer," he said.

Charles Nedoss, senior market strategist with Olympus Futures, said April gold prices holding the 10-day moving average around $1,415 helped stabilize the market. He said people aren't giving the break in the dollar enough credit in the metal's rebound Friday. "I really think the market had this wrong. People talked about gold rallying because of the Middle East, but … I really think the dollar trade is starting to kick in. We're (close) to testing new lows. The euro broke out and led the way, especially with Trichet talking about possible rate hikes as soon as April," Nedoss said.

The dollar has not benefitted from any safe-haven buying like the precious metals have lately. Also, the dollar hasn't benefitted from improving economic data, such as the strong U.S. manufacturing figures that came out earlier this week. Zaremski said as crude oil prices rise it could choke off the nascent economic rebound in the U.S. which would be bearish for the dollar. U.S. crude oil price rose to $104 a barrel on Friday over Middle East worries.

Another sign of generally positive economic data came from the U.S. Labor Department when it released the February U.S. unemployment figures. Those were initially considered disappointing because financial markets were looking for a bigger headline number. Payrolls increased by 192,000 overall. Private sector employment rose 222,000, but it was offset by deep job cuts in state and local governments. But as analysts parsed the data the consensus suggested growth.

"Overall this report strongly confirms the growing evidence that the economic expansion has moved into a self-sustaining growth phase. Unless the surge in oil prices undercuts confidence and spending markedly, look for the trend in employment gains to strengthen further in the months ahead," said David Reseler, economist at Nomura.

Economic data releases for next week are light and shouldn't have much market impact, the analysts said.

Looking at technical charts, gold and silver could target new highs next week, analysts said.

Zaremski puts support for April gold prices at $1,400 to $1,385. Both Nedoss and Zaremski place resistance at the April contract high at $1,441-$1,442. May silver has support "just under" $32, with resistance at $36, Zaremski said. Both analysts said with silver making new highs resistance is hard to peg, but said the next level is likely around $36.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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