* Gold near $1,570 on worries over inflation, Fed policy
* Gold option strategies bullish, volatility spikes
* Silver retreats after Thursday's record high
* Coming Up: U.S. construction spending on Monday
(Recasts, adds comment, updates market activity)
By Frank Tang
NEW YORK, April 29 (Reuters) - Gold surged nearly 2 percent
to a record for a third consecutive day on Friday, as inflation
worries, a dollar drop and expectations the U.S. Federal
Reserve will maintain loose monetary policy lifted bullion to
its biggest one-day gain in two months.
In late U.S. afternoon trade, bullion sharply extended
early gains, 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.
Spot gold <XAU=> was last up 1.8 percent at $1,562.60 an
ounce by 3:40 p.m. EDT (1940 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 <GCM1> 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.
Also, the CBOE gold volatility index <.GVX>, 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 were the biggest drive for gold and silver rallies
to records. []
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 RETREATS FROM RECORD
Silver extended gains after it on Thursday eclipsed the
peak set in 1980 when Texas brothers William Herbert and Nelson
Bunker Hunt attempted to corner to market. It posted a near 27
percent rise in April, its biggest monthly gain since April
1987.
Silver <XAG=> 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.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a 24-hour gold technical outlook:
http://graphics.thomsonreuters.com/WT1/20112904085247.jpg
For a graphic on silver as best-performing commodity:
http://r.reuters.com/duj88r
For SPDR, iShares holdings: []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The CME Group Inc <CME.O>, 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.
[]
For platinum group metals, platinum <XPT=> echoed the
strength in gold, rising 1.9 percent on the day to $1,870.49 an
ounce, while palladium <XPD=> rose 2.6 percent to $790.97.
Prices at 3:40 p.m. EDT (1939 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCM1> 1556.40 25.20 1.6% 9.5%
US silver <SIK1> 48.584 1.064 0.0% 57.0%
US platinum <PLN1> 1865.50 25.60 1.4% 4.9%
US palladium <PAM1> 792.15 16.85 2.2% -1.4%
Gold <XAU=> 1562.60 27.65 1.8% 10.1%
Silver <XAG=> 48.03 -0.38 -0.8% 55.6%
Platinum <XPT=> 1870.49 35.39 1.9% 5.8%
Palladium <XPD=> 790.97 19.74 2.6% -1.1%
Gold Fix <XAUFIX=> 1535.50 4.50 0.3% 8.9%
Silver Fix <XAGFIX=> 48.70 340.00 7.5% 59.0%
Platinum Fix <XPTFIX=> 1835.00 15.00 0.8% 6.0%
Palladium Fix <XPDFIX=> 777.00 8.00 1.0% -1.8%
(Editing by Marguerita Choy)
