* Physical gold demand blooms in China, India post price dip
* China announces relaxation of gold imports/export rules
* Gold-palladium ratio hits lowest since mid-May
(Updates prices, adds comment)
By Jan Harvey
LONDON, Aug 3 (Reuters) - Gold firmed on Tuesday as physical
consumers took advantage of lower prices to buy into the metal
and as China announced moves to allow greater freedom in its
gold trade, but a lack of investment kept a lid on gains.
Spot gold <XAU=> was bid at $1,184.95 an ounce at 1334 GMT,
against $1,181.25 late in New York on Monday. Earlier it rose as
high as $1,188.75. U.S. gold futures for December delivery
<GCZ0> climbed $1.80 to $1,187.20 an ounce.
Prices have struggled to make headway since hitting a record
$1,264.90 an ounce in June as concerns over euro zone sovereign
debt levels abated. Gold exchange-traded funds saw net outflows
last months, and net long positions in Comex gold futures fell.
"With the rejuvenating confidence in the health of the
global economy, gold's role as an investment asset seems to be
fading," said Richcomm Global Services analyst Pradeep Unni.
But broader physical demand for gold has risen, particularly
in Asia, as prices fell. Traders in India, the world's biggest
gold consumer, are buying ahead of festivals as the stronger
rupee made the metal cheaper for local buyers. []
"Prices below $1,180 are attractive for Indian buyers," said
one Mumbai-based dealer. Meanwhile buying by Chinese jewellers
and investors also pushed up premiums for gold bars to their
highest in nearly two years on Tuesday. [] []
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China's central bank said in a statement it will allow its
banks to import and export more gold as part of a programme to
push forward the development of the country's market in the
precious metal. []
"This is largely positive news for gold," said UBS analyst
Edel Tully. "It looks like an effort to further liberalise the
gold market and integrate it into China's financial framework."
She added that the move highlighted the importance of the
Chinese gold market both for the broader Chinese economy and for
the global gold trade. China is the world's main producer and
number two consumer of gold, but its trade is largely domestic.
RATES EYED
The dollar eased further on Tuesday, making dollar-priced
gold more affordable for holders of other currencies.
The euro hit a six-month high versus the U.S. unit, lifted
by solid euro zone data and corporate earnings. The dollar is
being pressured by concern over the U.S. economy. []
Slow U.S. growth is likely to keep interest rates low. While
this hurts the dollar, it may help gold longer term as it cuts
the opportunity cost of holding non-interest bearing assets.
"A slowing U.S. economy and the prospect of even lower
yields on U.S. Treasuries could be instrumental in supporting
gold prices," said HSBC analyst James Steel in a note.
Stock markets meanwhile drifted lower in Europe and the
United States after a lacklustre session in Asia. []
A recovery in stock markets last month took the heat out of
the safe-haven buying. Holdings of gold exchange-traded funds
broadly declined in July, with the largest, New York's SPDR Gold
Trust <GLD>, seeing the biggest monthly outflow in a year.
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For a graphic showing moves in the SPDR Gold Trust, click:
http://graphics.thomsonreuters.com/F/08/GLD_SPDRH0810.jpg
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Among other precious metals, silver <XAG=> was at $18.40
against $18.34, platinum <XPT=> at $1,586.15 an ounce versus
$1,593.25 and palladium <XPD=> at $507.80 versus $509.70.
Palladium hit an 11-week high at $514 an ounce on Monday as
appetite for industrial assets improved. The gold-palladium
ratio, or number of ounces of palladium needed to buy an ounce
of gold, fell to 2.3, its lowest since mid May.
(Reporting by Jan Harvey; Editing by Alison Birrane)
