Gold rose nearly 2% to above USD 1,550 an ounce amid thin volume on Friday, set for its biggest gain in five months, boosted by inflation worries, a dollar drop and expectations the US Federal Reserve will maintain easy money policy.
Silver extended gains after it eclipsed the Hunt Brothers' peak set in 1980 on Thursday. It was set for a 30% rise in April, its biggest monthly gain since April 1987. Platinum group metals also rose about 2%.
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.
"Gold is showing a text-book bull market behavior, a steady ascent without major spikes. It's the continuation of the same theme, as the Fed's posture seems to be fairly dovish still," said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.
Spot gold was last up 1.7% at USD 1,560.40 an ounce by 2:12 am EDT (1812 GMT), on course for a 9% monthly gain, its strongest since November. Bullion was also set for its seventh consecutive weekly rise, its longest winning streak since 2007.
US June futures settled up 1.6% at USD 1,556.40 an ounce, with trading volumes restricted by 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 USD 1,800 and USD 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.
Also, the CBOE gold volatility index, which measures bullion investor anxiety, rose 6 percent and set to be one of the biggest daily rise in 2011.
A slight drop in the dollar also contributed to bullion's gains. Earlier in the week, expectations of further weakness in the dollar powered gold and silver to record highs.
Earlier in the session, precious metals gained after data showed US consumer spending rose in March as households stretched to cover higher costs for food and gasoline, with inflation posting its biggest year-on-year rise in 10 months.
Investors look forward to next Friday's nonfarm payrolls data for trading cues, after data this week painted a picture of an economy with slower growth and higher inflation, and after the Federal Reserve signaled it would not tighten monetary policy any time soon.
Silver holds firm
Meanwhile silver hovered close to its record high, having gained 4% 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," Dailey said.
Silver was last up 0.1% at USD 48.49 an ounce.
The CME Group Inc, parent of the Chicago Board of Trade, said on Thursday it would raise maintenance margins for COMEX 5000 Silver futures by 13.2%, making it more expensive for silver speculators to trade in.
For platinum group metals, platinum echoed the strength in gold and silver, rising 1.8% on the day to USD 1,869 an ounce, while palladium rose 2.4% to USD 790.
