(Kitco News) - After hitting all-time highs, gold prices could backtrack a bit next week, but the downside for the yellow metal will be limited because of global uncertainty and U.S. dollar weakness.

Gold hit an all-time high on Thursday of $1,448.60 an ounce, while silver notched a 31-year high of $38.18 an ounce. Profit-taking on Friday pulled prices off of those highs as traders sought to pocket some money ahead of the weekend.

April gold futures on the Comex division of the New York Mercantile Exchange settled at $1,426.20, up 0.71% on the week. May silver settled at $37.049, up 5.4% on the week.
Robin Bhar, senior metals analyst at Credit Agricole-CIB, said there are too many uncertainties to bet against gold. From the violence in the Mideast, to concerns about euro-zone sovereign debt to a lower dollar, gold remains attractive.

“Profit-taking followed by a period of consolidation is envisaged… with dips towards USD1,420/oz likely, but further price spikes into new record-high territory cannot be ruled out given the geopolitical/macro uncertainties,” Bhar said.

Bhar said the Libyan crisis remains tense with NATO now in charge of enforcing the no-fly zone, while the world continues to warily watch the situation at Japan’s Fukushima nuclear plant. The European sovereign debt issue has risen again with Portugal likely needing aid; how much and when are the only questions remaining.

While the intermediate and long-term view for gold is bullish all around, that doesn’t mean that the metal can’t take a small step back. Ken Morrison, editor of online newsletter Morrison on the Markets, said historically gold has witnessed pullbacks every time it has made a new high.

“Gold is now a perfect five for five over the past six months in terms of when it makes a new high, it is followed almost immediately (zero to three days) of a downside correction of varying degrees of magnitude,” he said.

Morrison said lately it seems that gold has found buying support when it falls to the $1,400 area.

Next week, the April contract could come into some pressure as rolling of positions from the April contract to the June contract will become more pronounced. The market is preparing for first-notice day which will occur in a few days, futures analysts said.
Near-term resistance for gold is seen at $1,450, with most market watchers looking for $1,500 ultimately.

SILVER STAYS STRONG

Bhar said “there is no stopping silver.” He said investors prefer the gray metal to gold as a risk aversion play since it’s seen as a better and cheaper alternative. He cited the record high investment in the iShares Silver Trust, the world’s largest silver-backed exchange-traded fund, and the drop in the gold-silver ratio, which fell to its lowest since October 1983, as examples. The ratio is currently around 38.3.

The gold/silver ratio measures how many ounces of silver it takes to buy an ounce of gold. The lower the ratio, the stronger that silver prices become in comparison to gold.  Barclays Capital said they expect the gold/silver ratio to fall to 31.00.

The bank is bullish on silver. “We expect buying interest near the former highs in the 36.75 area to underpin any dips and look for gains to our next target in the 38.50 area. Our greater target for silver is in the 44.00 area,” they said.

Support, Morrison said, is around $36. Like gold, “silver also has a reliable history of correcting soon after hitting new highs,” he added.

PHYSICAL DEMAND REMAINS STRONG

Physical demand continues unabated, said Peter Thomas, director of business development at PFG Precious Metals. He added that like many metal dealers, he sometimes has delays getting supply in from the various global mints because they cannot keep up with demand. Others are still making exact deliveries. “The Royal Canadian Mint has never missed a (delivery) deadline. They’re smack-dab on the button. But they have plenty up there,” he said.

On the other hand, Thomas said, silver supply from the secondary market is “red hot.” He said investors who bought silver in 2007 or 2008 when silver prices were in the single digits are coming in to sell. “It’s secondary supply, it’s just not mint-fresh. Whether that matters depends on your end-user. If it’s someone who just wants it for investment, it doesn’t matter,” he said.

But not everyone is bringing in older silver. He said many are sitting on their supply waiting for $50 to become a reality.

Thomas said he expects silver prices will hit $50 and gold $1,500, but when is the question. Before that happens the markets could experience “wicked volatility,” he said.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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