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Gold prices may rise next week.Reuters

Gold prices are set to rise next week, with the upward momentum witnessed in the early days of 2014 expected to spill into the first full trading week of the new year, owing to commodity index rebalancing activity.

As many as 10 of 17 analysts polled in a Kitco Gold Survey said they expected gold prices to rise, six predicted that prices would drop and one forecast prices to remain unchanged.

Two widely tracked commodity indexes, based in the US, are increasing their allocation to precious metals such as gold and silver.

Both the Standard & Poor's Goldman Sachs Commodity Index (GSCI) and the Dow Jones-UBS Commodity Index (UBSCI) could drive more money to gold.

As such, traders have been stocking up on gold ahead of the five-day rebalancing that begins on 8 January for the GSCI and from 9 January for the DJ-UBSCI.

Speculator buying is expected to push up the yellow metal's prices next week.

Frank Lesh, broker and futures analyst with FuturePath Trading told Kitco: "Longs enter at a very important support level and the shorts - who expected a breach of the $1,180's - cover positions. There is some fund buying and bargain hunting as traders take advantage of an oversold market. Physical buying remains strong ... and should continue to support this market on the dips, but volume is lacking and we will need to see more participation to continue this move. I believe gold will continue this advance next week."

Bernard Sin from MKS SA told Reuters: "Gold opened near the lower range [on 3 January], so that's why you see a bit of confidence in buying. I think we will probably see continued buying until next week...and thereafter it depends pretty much on US figures and what the Federal Reserve is going to do."

Gold Ends Higher

Spot gold finished 1.1% higher at $1,238 an ounce on 3 January. Prices inched up 0.3% a week ago, when the metal remained on track to log its first annual decline in 13 years.

US gold futures for delivery in February finished 1.1% higher at $1,238.60 an ounce on 3 January.

For the week as a whole, gold futures gained 2%.

Gold lost nearly 30% in 2013 as the prospects of global economic recovery and stock market rallies dented the metal's safe-haven investment allure.