NEW YORK Gold rose to within a whisker of its 2012 high on Friday as technical momentum and recent stimulus efforts by major central banks around the world prompted bullion investors to boost bullish bets.
Bullion priced in euro terms hit a record high earlier in the session, but gains were later pared by profit taking. The metal posted a slim gain for the week for its fifth consecutive weekly rise.
A positive "golden cross" formed on technical charts and a bullish call made by well-known hedge fund manager Ray Dalio for gold ownership further fed market sentiment for bullion.
Traders said heavy buying of call options at high strike prices could extend the metal's recent rally as open interest in U.S. gold futures hit a one-year high for a second straight day.
"There are a lot of hedge funds that bought call options a week or two ago. There have been big buyers after the Fed has committed to the monetization of debt," said Jeffrey Sherman, commodity portfolio manager at DoubleLine Capital LP which manages $45 billion in assets.
Investors have been aggressively buying short-dated call options with the $2,000 an ounce strike price, Sherman said.
Spot gold was up 0.3 percent at $1,772.96 an ounce by 3:20 p.m. EDT (1920 GMT) after hitting a high of $1,787.20, within reach of the 2012 high of $1,790.30.
U.S. COMEX gold futures for December delivery settled up $7.80 at $1,778 an ounce, with trading volume surpassing its 250-day average, preliminary Reuters data showed.
COMEX futures' open interest, which measures the total outstanding long and short contracts, rose to a one-year high at 483,107 lots as of Thursday. Open interest of U.S. gold futures has gained about 25 percent in the past 30 days.
New longs, or investors who recently bought futures at higher prices, could lead to a spike in volatility if they opt to abandon their losing bets in a gold pullback, traders said. Next Tuesday's COMEX October expiration also increased choppiness.
MORE RALLY ON GOLDEN CROSS?
Earlier this week, gold's 50-day moving average (DMA) broke above its 200 DMA, which marked a golden cross in technical analysis, indicating bullion's intermediate and longer-term momentum is getting increasingly bullish. (Golden cross graphic: r.reuters.com/tas72t)
The previous long-lasting golden cross on bullion charts was formed on February 6, 2009, and gold prices had surged 11 percent in the following 11 sessions.
Prominent hedge fund manager Ray Dalio said investors should benefit from gold ownership as a hedge against the adverse effects of money printing by central banks.
"I think gold should be a portion of every one's portfolio to some degree because it diversifies the portfolio. It is the alternative money," Dalio, who runs the $120 billion hedge fund Bridgewater Associates, said on CNBC Television on Friday.
Among other precious metals, silver inched down 0.1 percent at $34.57 an ounce. Platinum climbed 0.7 percent to $1,631.75 an ounce, while palladium rose 1.1 percent to $667.25. 3:20 PM EDT LAST/ NET PCT LOW HIGH CURRENT
(Additional reporting by Jan Harvey in London; Editing by Bob Burgdorfer and Sofina Mirza-Reid)