Gold down but posts biggest weekly gain in three months

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Gold fell in choppy trade on Friday on as investors took profits, but the market still posted its biggest weekly gain in three months on strong physical demand after bullion hit a two-year low last week.

Bullion has recovered more than half of the loss of $225 per ouce incurred between April 12 and 16.

In early trade, gold rose more than 1 percent after the U.S. Commerce Department reported that economic growth regained speed in the first quarter, but not as much as expected. Gold gave back those early gains and slid into negative territory as options-related selling kicked in, and losses in industrial commodities including crude oil and copper also weighed.

Investors in exchange-traded funds headed for the exits, worried about potential central bank sales of bullion and uncertainty over the outlook for U.S. monetary stimulus.

"There is still some long liquidation in the market, suggesting that some investors are still repositioning themselves, and that leaves the price vulnerable to some sideways actions," said Erica Rannestad, precious metals analyst at the CPM Group.

Spot gold was down 0.6 percent at $1,457.76 an ounce by 3:28 p.m. EDT (1928 GMT), off the session high of $1,484.80.

U.S. gold futures for June delivery settled down $8.40 at $1,484.80 an ounce. Trading volume was about 10 percent above its 30-day average, preliminary Reuters data showed.

U.S. first-quarter growth expanded at a 2.5 percent annual rate, missing economists' expectations for 3 percent. Meanwhile, a separate report on consumer sentiment showed a drop from the previous month.

"That (GDP) is encouraging for gold because the whole sell-off in the metal was linked to perceptions that the U.S. economy was getting stronger and stronger," Societe Generale analyst Robin Bhar said.

Silver also rose early, hitting a 10-day high of $24.82. Then it slid, down 1.7 percent in late trade to $23.91 an ounce.

STRONG PHYSICAL DEMAND

Physical buying persisted in Asia, with premiums for gold bars in Hong Kong jumping to their highest level since October 2011 this week, at up to $3 an ounce to spot London prices.

Premiums in Singapore stayed at their highest since October 2008 at $3 an ounce to the spot London prices on demand from Indonesia, Thailand and India.

But while physical demand has been strong, China, the second-largest gold consumer after India, will be on holiday for three days next week for the May Day break, possibly removing significant support from the market, traders said.

A daily drop in exchange-traded funds' holdings suggested that gold investors were still licking their wounds after bullion's historic fall last week.

Holdings of the largest gold-backed exchange-traded fund, the SPDR Gold Trust, dipped 0.25 percent to 1,090.27 tonnes on Thursday, from 1,092.98 on Wednesday. Holdings are at their lowest level since September 2009.

Among platinum group metals, platinum gained 0.4 percent to $1,472.49 an ounce, while palladium was down 0.4 percent at $677.25 an ounce.

(Additional reporting by Lewa Pardomuan in Singapore; Editing by Veronica Brown, David Goodman and David Gregorio)