* China buys gold to rebalance its reserves
* China may buy more, perhaps directly from the IMF
* SPDR holdings fall
(Adds detail/comment, updates prices)
By Pratima Desai
LONDON, April 24 (Reuters) - Gold surged to a three-week
high before easing on Friday, boosted by the prospect of further
purchases by China, after the country revealed it had been
buying the precious metal since 2003.
Spot gold <XAU=> was at $907.25/908.00 an ounce at 1448 GMT
from $902 late in New York on Thursday. Earlier on Friday it hit
$912.80, a rise of more than 5 percent this week and the highest
since April 2.
China has raised its gold reserves by three-quarters since
2003 to 1,054 tonnes, confirming speculation it had been buying
in the market for some years. []
"The massive accumulation of foreign exchange reserves meant
gold as a proportion of total reserves had fallen below 1
percent compared with a norm of about 2 percent," said Michael
Lewis, head of commodities research at Deutsche Bank.
"It could be a short term supportive story because they want
to get back to where they were with quite a substantial amount
of purchasing for their reserves."
China's reserves are now the fifth biggest in the world,
with only six countries holding more than 1,000 tonnes.
It needs to buy more and some of its purchases could be in
the spot market, but UBS thinks there is another way for the
China to quickly boost its gold holdings
"The proposed IMF sales of 403.3 tonnes of gold represents
the biggest opportunity for China to buy a large amount of gold
in one transaction," it said.
"China could buy gold in the open market and add to its
holdings, although it would only be able to do so at a slow and
steady rate: any move to buy large amounts of gold would have a
large market impact."
But some analysts were wary, and said the Chinese buying was
the equivalent of less than 100 tonnes a year.
"It doesn't necessarily mean they'll be buying substantial
quantities of metal," one precious metals analyst said.
INVESTORS RETREAT
China's news overshadowed a rise in stock markets. Equity
gains in recent weeks have dampened investor enthusiasm for
gold, seen in the holdings by the world's largest gold-backed
exchange-traded fund, the SPDR Gold Trust <XAUEXT-NYS-TT>.
SPDR's gold holdings fell to 1,104.45 tonnes as of April 23,
down 1.53 tonnes or 0.1 percent from the previous day, extending
a decline that began last week in the biggest unwinding of
positions seen since September. []
A 44 percent surge in SPDR's holdings since the start of the
year had helped underpin gold prices, but the last increase was
nearly a month ago.
However, traders say renewed dollar weakness will also help
sentiment in the gold and precious metals markets. []
"It's been drifting back with the dollar still weak," said
Simon Weeks, managing director of precious metals at Bank of
Nova Scotia. "The ETFs have seen some losses and yet we're
higher, so its more speculative."
Silver <XAG=>, tracking gold, rose to $12.93 an ounce, the
highest since April 3 and was last bid at $12.77/$12.83, up from
$12.74 late in New York on Thursday.
Palladium <XPD=> was $232.50/$235.50 from $230.50 an ounce
and platinum <XPT=> at $1,172.50/$1,180.50 from $1,178.50 on
Thursday.
Prices of platinum used in autocatalysts have staged a
recovery in recent days on talk of buying by car makers, glass
makers and investment demand. But expectations are the rally
will be limited and prone to reversing.
"The gains are premature, there is no end in sight to the
carnage in the auto sector, no amount of incentives are going to
significantly increase demand for new cars in this environment,"
a London-based trader said.
(Reporting by Michael Taylor; editing by Sue Thomas)
