Gold for February delivery closed at $541.20 an ounce on the New York Mercantile Exchange after touching an intraday high of $541.80. Prices haven't closed at a level this high since March 1981, though on an intraday basis, they touched $543 on Dec. 12 of last year. The contract finished up $13.40 for the session and up $22.30, or 4.3%, for the week. Prices fell $7.80 on Thursday after rallying by more than $40 over the previous eight sessions. China said Thursday that it would diversify its foreign-exchange reserves away from U.S. dollars and government bonds. See related story. "China's announcement of wanting to diversify their foreign-exchange reserves holdings is going to have a profound effect on financial markets worldwide," said Peter Grandich, editor of the Grandich Letter. "It's the death blow to the U.S. dollar, which had enjoyed a temporary reprieve in 2005, and another bullish factor for gold going forward," he said. Also, "disappointing U.S. employment numbers spooked the dollar, and in turn boosted gold prices on its traditional inverse relationship," said Matthew Parry, an economist at Economy.com. The dollar fell to its lowest against the yen Friday since mid-October. See Currencies. "Diversifying away from dollars has become desirable -- retail investors returned to the precious metals arena in droves this week," said Jon Nadler, an investment products analyst at bullion dealers Kitco.com. "Low yields on cash and negative real interest rates are adding fuel to this quest for adding gold and silver to one's portfolio," he said. However, "it is still mostly the fundamental picture of sluggish supply and robust demand plus the prospects for weakness in the dollar that are the engines of this latest spike in prices." Bullish outlook Against this backdrop, the outlook for bullion is "very positive," analysts at Desjardins Securities said in a note to clients. "The main reason is that investment demand will continue to boost the gold price. Underlying nervousness with regard to the fundamentals for the U.S. dollar is underpinning investment in gold." Economy.com's Parry said gold prices will remain supported above $500 in 2006, reflecting a weakening in the dollar tied to slower tightening in monetary policy by the Federal Reserve as well as continued tensions in the Middle East. Analysts at Nacional Bank raised their forecasts for gold to $525 an ounce in 2006 and 2007 and $500 an ounce in 2008. Speculation that central banks in countries including China, South Africa and Argentina will increase the portion of gold held as reserves is also keeping gold above $500 and fueling gains in gold equities, they said. Most other metals were higher, with March silver closing up 30.1 cents at $9.173 an ounce -- up 3.2% for the week. January platinum ended at $1,004.60 an ounce, adding $13.10 for the session to close the week with a gain of 2.6%. March palladium rose $7.05 to close at $273.40 an ounce, up 4.4% from the week-ago close. Copper's March contract tacked on 2.55 cents to finish at $2.086 a pound. It gained 2.2% for the week. On the supply side, copper inventories rose 336 short tons to 7,762 short tons as of last Thursday, according to Nymex. Gold stocks were unchanged at 6.91 million troy ounces, while supplies of silver were unchanged at 120.6 million troy ounces.