Gold surged to a record high on Friday for the third straight day, as investors kept up a buying frenzy fueled by the outlook for low U.S. interest rates that has propelled bullion to its seventh consecutive weekly rise, its longest winning streak since 2007.
Bullion jumped to $1,569.30 an ounce as U.S. consumer spending rose for a ninth straight month in March with inflation at its highest in nearly a year. Platinum group metals also rose about 2 percent but silver fell 1 percent after soaring to record high in the previous session.
Option traders reported strong buying of call options and call spreads, reflecting bullish market expectations. A gauge of bullion market volatility also spiked in response to a sharp price rally.
What has been driving gold is an abundance of liquidity of Fed policy that remains exceedingly accommodative, which is going to work against the U.S. dollar, said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott, which manages $53 billion in client assets.
There is worry that inflation, which is not a problem right now, could escalate to become one. And once it does, it becomes very difficult to put the genie back into the bottle, he said.
The CBOE gold volatility index <.GVX>, which measures bullion investor anxiety, rose 6 percent to its highest level in five weeks.
Spot gold was last up 1.8 percent at $1,563.30 an ounce by 5 p.m. EDT (2100 GMT), having earlier hit an all-time high $1,569.30. The metal notched a 9 percent monthly gain, its strongest since November. Bullion also posted its seventh consecutive weekly rise, its longest winning streak since 2007.
U.S. June futures settled up 1.7 percent at $1,556.40 an ounce, with trading volumes about one-third below its 30-day average due to a public holiday in London.
On the options front, heavy buying of outright call options and bull call spreads of June 2012 calls with strikes $1,800 and $2,000, said COMEX gold options floor trader Jonathan Jossen.
Bull call spread is an option play involving the buying of calls at one strike price while selling them at a higher strike with the same expiration date. Investors often expect prices to rise moderately with the strategy.
A slight drop in the dollar also contributed to bullion's gains. Earlier in the week, expectations of further weakness in the dollar were the biggest drive for gold and silver rallies to records.
SILVER RETREATS FROM RECORD
Silver retreated from the record high it set Thursday, but was still by far the best-performing commodity in April and so far in 2011. It posted a near 27 percent rise in April, its biggest monthly gain since April 1987.
Silver was last down 0.8 percent at $48.03 an ounce.
Silver gained 3 percent this week, although analysts say its robust performance against the other precious metals may not be sustainable.
If silver doesn't make a new high and sustain above that, it may go through a more vicious correction here. So, gold in the short term could go down in sympathy of that, said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.
Speculators scaled back their bullish bets in COMEX silver futures and options to the lowest level since early February, even as prices neared the psychological $50 an ounce, regulator data showed Friday.
The CME Group Inc
For platinum group metals, platinum echoed the strength in gold, rising 1.9 percent on the day to $1,870.49 an ounce, while palladium rose 2.6 percent to $790.97.
(Editing by Marguerita Choy)