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(Kitco News) - A strong rally on Friday and persistent worries about the Eurozone sovereign debt issues are likely to keep gold prices supported into next week, with a chance to possibly test new highs.

Silver remains volatile and this will likely keep most market participants sidelined, traders said.

August gold futures on the Comex division of the New York Mercantile Exchange settled at $1,537.30 an ounce, up 1.8% on the week, while June gold settled at $1,537.30, up 1.8%. July silver settled at $37.863 an ounce, up 7.9% on the week.

In the Kitco News Gold Survey, out of 34 participants, 19 responded this week. Of those 19 participants, 14 see prices up, while three see prices down and two see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.

Market watchers were impressed with gold’s move above the May 11 high of $1,526.80 basis the June futures ($1,527.90 basis August) on Friday. The market’s price saw a gentle upslope for the week, which is also a positive sign for those who see further gains next week.

“I think we’ll test the $1,600 mark sometime in the next two weeks,” said Zach Oxman, managing director of TrendMax Futures. “There are worries about the Eurozone and concerns about China slowing down. Despite the fall to $1,480, gold didn’t take the hit that silver and crude oil did.”

The debt crisis in the southern-tier European nations remains a significant factor for the markets. Greece is at the forefront of the most recent problems as concerns flared that it would not receive its next tranche of payments from the International Monetary Fund and the European Union. There are also some thoughts that China’s attempts to slow its economy are starting to take hold.

Jimmy Tintle, analyst at Transworld Futures, said the trend for gold for the past two weeks has been solidly higher and prices could easily test $1,560 next week provided there is no big news to change the trend. He is a little cautious about the markets because both the U.S. and the U.K. have three-day weekends ahead of them. Markets are closed on Monday in the U.S. for Memorial Day and in the U.K. for a bank holiday.

If prices do rise to $1,560, then gold is in striking distance of taking out the all-time nominal highs set at the beginning of the month, $1,577.40 for June gold and $1,577.70 for August gold.

Charles Nedoss, senior market strategist with Olympus Futures, said he’s “very bullish” on gold going into next week, especially given the poor performance by the U.S. dollar. The sovereign debt issue in Europe is the main support, he said. Still, he said, targeting the recent high of the $1,577 area would be “a lot of work for gold to do,” but doesn’t rule out $1,550.

When concerns over the Eurozone have flared up, that has at times supported the U.S. dollar, which at times can put pressure on gold because it is dollar-denominated. Oxman said dollar-strength might have some capping effect on gold, the fact that gold is keeping its safe-haven currency status limits much downside.

Silver continues to see big trading ranges after the sharp drop from near $50 set in April. Oxman said he has no position in silver because it remains so volatile. The market is still “very choppy” and that’s likely keeping traders to the sidelines.

Silver has a hard time building on gains when it returns to the $40 level, Tintle said. Selling usually appears at $38.50 to $39, with buying support around $34. Silver is caught in a Catch-22 between industrial demand versus precious metal demand. With recent economic reports showing sluggishness in the manufacturing sector and a dismal pending home sales report from April which came out Friday, the industrial component of silver could keep it tethered.

Because of that, Tintle said, the gold-silver ration may widen out again in gold’s favor.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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