Gold rose 1 percent Friday, setting a 10-day high as a lower dollar prompted investors to buy ahead of next week's Federal Reserve meeting, at which the central bank is expected to discuss further monetary stimulus.
Jitters about suspicious packages in Britain and Dubai after U.S. and British security officials searched United Parcel Service cargo flights also prompted buying of gold.
"It appears these suspicious packages found on the U.S.-bound cargo planes were responsible for the gold rally," said Bruce Dunn, vice president of trading at bullion dealer Auramet.
Investors often turn to gold as a safe haven in times of geopolitical and economic uncertainty.
Spot gold was up 1 percent at $1,356.26 an ounce at 2:53 p.m. EDT. U.S. gold futures for December delivery settled up $15.10 at $1,357.60.
Dunn said technical buying emerged after prices broke above $1,350 an ounce, a level where gold ran into resistance this week. U.S. mid-term election and the Federal Reserve meeting next week also triggered short-covering, he said.
Bullion was up nearly 2 percent on the week, resuming its rise after last week's decline snapped 11 straight weeks of gains.
U.S. data Friday showed third-quarter economic growth edged up as expected, but not enough to reduce unemployment. Investors still believe the Fed will resume government debt purchases in a second round of quantitative easing, called QE2 by Fed watchers, to boost the sluggish economy. Many believe this could lift gold.
"Next week will be a big one news-wise — the FOMC, the mid-term elections, as well as non-farm payrolls," said Afshin Nabavi, head of trading at MKS Finance in Geneva.
Gold got a boost as the dollar slumped on uncertainty about U.S. monetary easing. All eyes are on the Federal Open Market Committee meeting Nov. 2-3. Most leading economists believe the Fed will buy $80 billion to $100 billion per month worth of assets, and some forecasters expect easing will eventually total as much as $2 trillion.
"The Fed meeting next week has been dominating the markets," said Standard Bank analyst Walter de Wet.
"We think the gold market has priced in around a $500 billion QE exercise by the Fed," de Wet added. "If the Fed comes out with a higher figure, we think gold will move higher. If it's lower, it is going to be bearish for gold."
IMF UPS GOLD SALES IN SEPTEMBER
The International Monetary Fund sold 1.04 million ounces (32.3 tons) of gold in September, nearly a third of it to Bangladesh, an IMF spokesman said on Friday.
Traders say the physical market has supported prices in recent weeks following gold's correction from record highs at $1,387.10 an ounce.
Buying in India has been relatively healthy ahead of Hindu festivals and major gold-buying events of Dhanteras and Diwali next week.
Hong Kong trade data showed the flow of gold from Hong Kong to China in the first eight months of 2010 nearly double that for the whole of 2009, suggesting surging appetite for jewelry and investments.
Spot silver rose 2.5 percent to $24.58, tracking gold. COEMX futures trading volume was about 22 percent higher than their 30-day average, after alleged silver conspiracy lawsuits filed this week against two major banks created additional buzz in the white metal.
Palladium rose to a peak of $644 an ounce, its highest since May 2001. Spot palladium rose 3.1 percent to $642.47.
"Already palladium is in deficit; it will be in deficit next year," said de Wet. "China auto sales are very strong, and certainly we think there is buying in anticipation of a seasonal upturn in auto sales, typically from now until March.
Spot platinum climbed 0.6 percent to $1,697.74 an ounce.
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