* Gold prices hit record for fifth straight session
* Dollar index near record low, inflation simmers
* Put option trade on silver ETF seen bearish
* Coming up: US CFTC Commitments of Traders report Friday (Recasts, adds comment, updates prices)
By Frank Tang
NEW YORK, April 21 (Reuters) - Gold prices rallied to record highs on Thursday for a fifth straight session and silver surged as the dollar index tumbled for a third day toward an all-time low, prompting investors to buy bullion as a currency hedge.
Bullion, which jumped above $1,500 an ounce for the first time on Wednesday, once again rose in tandem with riskier assets such as equities on inflation fears.
"The U.S. dollar is in the midst of a severe downtrend. So the dollar is not the safe haven in view of the difficulty the U.S. government is having in resolving its budget deficit, and gold is benefiting from that," said Leo Larkin, metals equity analyst at Standard & Poor's.
Spot gold rose 0.6 percent to $1,507.21 an ounce by 3:22 p.m. (1922 GMT), after hitting a record $1,508.75 an ounce. U.S. gold futures for June delivery settled up $4.90 an ounce at $1,503.80.
U.S. commodity markets will be shut on Friday for the Good Friday holiday. However, the CFTC Commitments of Traders report is still scheduled to be released at 15:30 p.m. EDT (1930 GMT) Friday.
Silver gained 2.7 percent to $46.44 an ounce. U.S. silver futures trade was active, with volume topping 170,000 lots.
The gold/silver ratio -- which shows how much silver an ounce of gold can buy -- is set to fall for a ninth consecutive session to below 33, a 28-year low.
"Silver continues to attract huge speculative interest. Even though silver is outperforming gold, the genesis of this rally is still related to the flight-to-safety factors supporting gold," O'Neill said.
But a big put option trade on iShares Silver Trust, the world's largest silver-backed exchange-traded fund, suggests some traders are betting on a sharp reversal by year's end after a huge rally in silver prices.
The big put trade appears to be an outright bearish bet that silver will come crashing down over the next eight months, optionMonster analyst Chris McKhann said in comments on the firm's website.
"The SLV doesn't actually need to fall that entire percentage for these puts to profit, but the trade does forecast a sharp longer-term decline," McKhann said.
GOLD AS CURRENCY HEDGE
Gold also benefits as a hedge against U.S. currency depreciation, as the dollar fell broadly for a third straight day as record low interest rates and the crushing weight of the U.S. budget deficit pushed it closer to an all-time trough against major currencies.
S&P warmed on Monday that it could cut its long-term rating on U.S. Treasury debt if the government cannot find a way to slash its massive debt. Such a move would weigh heavily on the U.S. dollar and threaten economic stability throughout the world -- a perfect recipe for gold rally.
Gold prices have risen more than 5 percent so far this month and posted a sixth straight week of gains, reflecting strength across the commodity markets.
Investors have rushed into risky assets due to strong U.S. corporate earnings and signs the global economy is chugging along even as the Federal Reserve stays very cautious about when it will start to unwind its super-loose policy.
The metal is expected to be underpinned by uncertainty over how the United States will adjust monetary policy after the Federal Reserve's $600 billion government bond-buying program -- known as quantitative easing -- comes to an end in June.
Among other precious metals, platinum rose 1.2 percent to $1,813.24 an ounce, while palladium gained 2 percent to $766.97. (Additional reporting by Doris Frankel in Chicago and Jan Harvey in London; Editing by David Gregorio and Jim Marshall)