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Gold surged to a
record high on Friday for the third straight day, as investors kept up
a buying frenzy fuelled 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, 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,
parent of the Chicago Board of Trade, said on Thursday it would raise
maintenance margins for silver futures by 13.2 percent, its second time
this week, making it more expensive for silver speculators to trade in.

Reuters