NEW YORK, Aug 29 (Reuters) - The gold rally accelerated in a short COMEX session Friday, closing in on February's 6-1/2 year highs as a weaker dollar kept the overseas money flowing in and traders confidently stuck with longs at month end.
Silver hit a 1-month high before squaring pushed it lower, wearing away some of gold's winnings as trade wrapped up around midday. U.S. financial markets will be closed Monday for Labor Day and trading conditions were a bit irregular.
"It started in silver and went over to gold," said a floor broker at the close. "The ring was a bit long and they kind of dumped it and you have a long weekend coming up so people evened up."
December gold settled up $5.20 at $376.80 an ounce, breaking above May's peak at $377 to its priciest since Feb 6. That was a day after the contract topped at $391 and spot hit its highest price since the middle of 1996.
"It's obviously predicated on the early weakness in the dollar and the fact that we got a pretty sizable boost from a technical breakout from 2 days ago," said a metals broker.
The dollar pulled back against the euro and hit a 3-month low against the yen Friday.
Even though economic growth is recovering, a shaky bond market has driven investors to gold as a safe haven, especially as U.S. plans for peace in the Middle East and the reconstruction of Iraq are dealt setbacks almost daily from suicide bombings and potshots at soldiers.
Though the market is deeply overbought, traders are looking for gold to trade above $400 an ounce, even if its first pulls back to Wednesday's breakout level around $365.
Spot bullion closed at $375.20/5.95, up from $370.10/85 late Thursday. London bullion dealers fixed the afternoon spot reference price at $375.60.
Many long positions are deeply profitable. Funds have been buying almost non-stop since the beginning of August when December gold fetched $346 an ounce.
Last week the net long held by speculators on the COMEX was 89,998 contracts. The flood of new money this week seemed to disregard what was perhaps the biggest position ever to cast a shadow over a giddy gold market.
"This will indeed be a 'long' weekend," wrote Mitsui Global Precious Metals analyst Andy Smith on Friday. "As will the next and the next."
Open interest rose 384 contracts on Thursday to 262,132. On Wednesday open interest ballooned 18,739-lots, the third biggest 1 day rise and the second biggest leap on the longer side in at least 15 years, Smith said in his report.
"History shows, well, not much, given the small sample of such days," he said. "In 2 out of 3 cases ... price did not come back from outer space in 3 months.
Wednesday's open interest jump was larger than when hedge fund guru George Soros and British financier Sir James Goldsmith binged on gold in 1993 and was only exceeded in January 1996 during a hedge buyback by Canadian producer Barrick Gold, according to data provided by Smith.
December silver ended off 1.8 cents at $5.132 an ounce, touching $5.12 and $5.195, the highest since July 30.
Spot silver fetched $5.09/11, off from $5.11/13 on Thursday. The fix was $5.105.
NYMEX October platinum eased $3.90 to $708.60 an ounce. Spot fetched $708.00/712.00.
December palladium slipped $1.10 to $203.90 an ounce. Spot palladium closed at $199.00/204.00.