Gold prices posted a modest gain Friday, capping a three-day rally as well as a week in which the yellow metal jumped 4.15 percent.

The surge began Wednesday when the U.S. central bank surprised markets by saying it would extend ultra-low interest rates for three more years.

Investors ignored the pessimistic outlook for the U.S. economy implicity in the Fed's action and bid up stocks, the euro, industrial metals and precious metals.

The Fed's announcement that it would keep its rates exceptionally low until 2014 was ... clearly not fully priced by the market, BNP Paribas analyst Anne-Laure Tremblay, told Reuters.  Real interest rates are likely to stay negative in the U.S. in the next two years, which will be supportive of the gold price, 

Besides prospects of cheap money until 2014, the likelihood of more monetary expansion by the Fed also supported the week's gold price rally.

More accommodative policy is a very good foundation for gold to build on the next move higher, UBS analyst Edel Tully said in a note. And as the Fed slowly becomes more open about the idea of further stimulus and as European (quantitative easing) remains a possibility, there are significant upside implications for gold.

The week's rally drew support from Friday's weaker-than-expected report on fourth-quarter GDP. Among the report's disappointments was consumer spending at a mere two percent, well below the 2.4 percent consensus and despite falling personal savings rate. The report also showed an annualized growth rate for final demand (ex-inventories and net foreign trade) of 0.9 percent.

Meanwhile, the New York Times reported that Westport, Conn.-based hedge fund Bridgewater Associates, which manages nearly $120 billion, is betting on gold prices climbing. The report piqued many investors' interest in the metal.

The Dollar Index fell 0.6 percent to 79.04, making gold less expensive for buyers who use non-U.S. currencies. The euro was up in late afternoon trading above $1.32.

So far this year gold has surged more than 10 percent, and many analysts believe the now-decade-long bull market has farther to go.

Nothing else (besides gold) has rallied each of the past 10 years, David A. Rosenberg, chief economist for Gluskin Sheff + Associates Inc., said in a client note, through periods of a soft U.S. dollar (since it's priced in dollars) and strong U.S. dollar (risk-off attribute); periods of inflation (best hedge) and deflation (different sort of hedge - against the financial instability this brings on); through recessions (safe haven) and expansions (a play on reflationary growth).

The other precious metals also had a big week: Silver rose 6.69 percent; platinum was up 5.97 percent; and palladium gained 2.25 percent.

Gold for February delivery increased $5.50 to close at $1,732.20, while spot gold rose $6.50 to $1,733.01.

Silver for March delivery was unchanged at $33.24, while spot silver added 26 cents to $33.80.