Gold rises for third day after soft U.S. GDP data

Gold bars are displayed at the Ginza Tanaka store in Tokyo September 18, 2008.

NEW YORK/LONDON (Reuters) - Gold prices rose nearly 1 percent on Friday, posting their biggest three-day rally since late October, after a report showing disappointing U.S. economic growth boosted the metal's safe-haven appeal.

Bullion rose above $1,730 an ounce for the first time in seven weeks after data showed the U.S. economy grew less than expected in the fourth quarter.

Gold's gain extended a rally ignited on Wednesday when the Federal Reserve said it would likely keep interest rates near zero until at least late 2014 and that it was ready to offer economy additional stimulus.

The metal also got a boost from reports that the world's biggest hedge fund, Bridgewater Associates, was bullish on the precious metal as a hedge against inflation as governments print more money to reduce debt.

"With the softer-than-expected GDP reading it means that at a minimum we are going to have a highly accommodative monetary posture," said Mark Luschini, chief investment strategist of Janney Montgomery Scott, a broker-dealer with about $54 billion in assets under management.

"That should be supportive of the higher gold price, as it plays into the probability that QE3 may be in the offing," Luschini said.

Spot gold was up 0.9 percent at $1,735.96 an ounce by 3:23 p.m. EST (2023 GMT). It is up around 5 percent this week alone, its biggest one-week gain since the last week of October.

U.S. gold futures for February delivery settled up $5.50 at $1,732.20 an ounce. Trading volume topped 300,000 lots, double its 30-day average, putting it on track to be one of the busiest sessions since September.

Technical buying also fueled gains. Earlier in the week, gold broke above a key Fibonacci retracement level and the 100-day moving average. Gold rose above its 200-day MA last week.

Gold is on track to rise more than 10 percent this month, its biggest monthly gain since August 2011.

Explaining gold's big gains this week, analysts pointed to the Federal Reserve's announcement that it would keep rates low.

"The Fed's announcement that it would keep its rates exceptionally low until 2014 was ... clearly not fully priced by the market," said BNP Paribas analyst Anne-Laure Tremblay.

"Real interest rates are likely to stay negative in the U.S. in the next two years, which will be supportive of the gold price," Tremblay said.

Low interest rates benefit zero-yielding gold. Minimal borrowing costs also tend to fuel a gradual increase in commodity prices, supporting the metal's traditional role as a hedge against inflation.

Also helping gold was a sharply weaker dollar versus the euro and stronger Brent crude oil prices.

FED MOVE AS NEW CATALYST?

The debt crisis was a major driver of higher gold prices last year as investors bought the metal as insurance against a worsening outlook for the euro zone. However, its rally stalled in late 2011 as the metal appeared to lose its appeal as a safe haven.

UBS analysts said the market attitude toward gold has largely been cautiously optimistic after the metal fell 10 percent and briefly entered a bear market in the fourth quarter.

"A fresh catalyst was needed and we think the FOMC outcome on Wednesday fit the bill. More accommodative policy is a very good foundation for gold to build on the next move higher," the Swiss Bank said in a note.

Among other precious metals, silver was up 1.3 percent at $33.84 an ounce.

Silver is on track for a near 20 percent rise in January, its biggest one-month gain since April 2011 when it rallied to a record $49.51 an ounce. Caution has dominated the market since then as the all-time high was followed by a sharp correction.

Spot platinum was up 0.7 percent at $1,615.60 an ounce, while palladium was down 0.2 percent at $686.43.

Platinum has outperformed palladium this month, climbing around 15 percent for its biggest one-month rise since February 2008.

3:23 PM EST LAST/ NET PCT LOW HIGH CURRENT

SETTLE CHNG CHNG VOL

US Gold FEB 1732.20 5.50 0.3 1714.20 1736.10 162,496

US Silver MAR 33.79 0.047 0.1 33.240 33.940 30,838

US Plat APR 1623.00 6.20 0.4 1603.30 1627.80 5,239

US Pall MAR 690.15 -4.30 -0.6 681.00 694.80 2,846

Gold 1735.96 15.92 0.9 1715.40 1736.36

Silver 33.840 0.420 1.3 33.300 33.930

Platinum 1615.60 12.00 0.7 1604.00 1621.50

Palladium 686.43 -1.32 -0.2 683.00 691.00

TOTAL MARKET VOLUME 30-D ATM VOLATILITY

CURRENT 30D AVG 250D AVG CURRENT CHG

US Gold 308,268 158,218 188,701 20.63 -1.40

US Silver 33,233 35,514 75,936 38.38 -0.06

US Platinum 5,293 8,985 7,924 31 -3.00

US Palladium 2,895 3,368 4,392

(Editing by Jim Marshall, David Gregorio and Bob Burgdorfer)