Gold extends gains, climbs to two-week high

By A. Ananthalakshmi

REUTERS - Gold rose for a fourth session on Friday, gaining over 1 percent to hit a two-week high as weaker equities spurred demand for the metal as a safe-haven asset.

Gold, headed for its best weekly performance since October, was also supported by strong physical demand from China, the world's biggest bullion consumer.

The gains come after gold lost nearly 30 percent in 2013, ending a 12-year bull run and posting its largest annual loss in 32 years, largely due to the U.S. Federal Reserve's plans to unwind its monetary stimulus programme.

Analysts, however, cautioned that the upward momentum in the early days of the new year will not last and that the metal is likely to record another drop in value in 2014.

"The gains might be persistent in January as we come off 2013 losses but it won't continue for the remainder of the year as the (Fed) tapering is set to begin and the global economy is improving," said Chen Min, an analyst at Jinrui Futures in Shenzhen.

The Fed's bond-buying stimulus measures amid a weak global economy helped boost gold prices over the last few years. But with an improving labour market and other economic progress, the Fed decided to scale back the stimulus, hurting gold's appeal.

Spot gold was up 0.85 percent to $1,234.90 an ounce by 0708 GMT after hitting $1,238.70 earlier - its highest since December 18. It climbed 1.6 percent on Thursday.

Silver was also trading near its highest in two weeks after gaining 3.5 percent in the previous session.

Asian share markets were under water on Friday, caught up in an outbreak of global risk aversion.

"Positive bullion prices in reaction to the decline in equities may set the tone for 2014 and reinforce the negative correlation between the two," HSBC analysts said in a note.

CHINA DEMAND

Premiums on the Shanghai Gold Exchange showed that Chinese buying has picked up in recent days as global prices hovered around $1,200 towards the end of 2013.

The buying pace dropped slightly after Thursday's rally.

Premiums to London prices for 99.99 percent purity gold dropped to about $17 an ounce on Friday after climbing to $25 earlier this week.

Chinese demand is likely to stay strong in the build up to the Lunar New Year on January 31, when gold is traditionally given as a gift, Jinrui's Chen said.

(Reporting by A. Ananthalakshmi; Editing by Tom Hogue)