Gold rose 1.5 percent on Friday, tracking a Wall Street rally, as Italy pushed through austerity measures demanded by the European Union and a new Greece government fueled hopes that a euro zone sovereign debt meltdown could be averted.
Bullion notched its third consecutive weekly gain, its longest winning streak since August, after Italian Senate passed a new budget law that cleared the way for a full approval of the fiscal package and the formation of an emergency government to replace that of Prime Minister Silvio Berlusconi.
The metal -- a traditional safe haven which has recently taken to tracking riskier assets -- rose in tandem U.S. equities and the euro, as the S&P 500 soared around 2 percent, as former European Central Bank policymaker Lucas Papademos was sworn in as Greek prime minister with an aim to avert national bankruptcy.
Optimism is growing in Europe because of a better economic outlook there. Buying from Far East and European gold investors continued as euro zone calmed some fears of tighter bank credit, said George Gero, vice president of RBC Capital Markets.
Spot gold rose 1.6 percent to $1,787.04 an ounce by 3:26 p.m. EDT, snapping a three-day losing streak.
U.S. December gold futures settled up $28.50 at $1,788.10 an ounce. Trading volume was below its 30-day norm as U.S. banks, governments and the bond market are closed for the Veterans Day holiday.
Silver rose 1.7 percent to $34.65 an ounce.
ITALY, EURO ZONE WORRIES
Gold fell in three out of the five days this week, hit by margin selling from the equity markets as Italy has overtaken Greece as the main focus of the euro zone debt crisis this week, with yields on Italy's benchmark 10-year bonds rising to levels considered to be unsustainable.
We are concerned about the lack of liquidity in the market, and we are even more concerned about how readily gold seems capable of falling $25-$35 an ounce at the very slightest sum of selling, said Dennis Gartman, a veteran trader and market commentator.
Italian bond yields dropped on Friday after rising to levels deemed unsustainable earlier this week, though investors remained concerned that euro zone's third-largest economy could buckle under its 2 trillion euros of debt. Unlike Greece, Italy is too big to bail out.
Analysts said that possible new liquidity programs by the ECB can aggravate price pressures, making gold more attractive as an asset seen to hold its value better than paper currencies during times of high inflation.
Standard Bank analyst Walter de Wet, who said he expected the gold price to rise to $2,000 an ounce, said the ECB will have to create more money to assist the debt burden in Europe, supporting gold prices.
Investment flows into gold-backed exchange-traded funds continued this week. SPDR Gold Trust, the world's largest gold ETF, reported a fifth straight day of gains in its holdings -- reaching 1,268.666 tonnes by November 10, the highest since late August.
In other platinum group metals, platinum climbed 1.2 percent to $1,636.45 an ounce and palladium rose 2.2 percent to $656.72, tracking a rebound in industrial metals led by copper.