By Jan Harvey
LONDON (Reuters) - Gold prices hit three-week highs on Monday in thin trade, extending the previous session's gains, as simmering tensions in Ukraine and a break above a key chart level fuelled buying.
Dealers remained cautious on whether the gains can be sustained, however, as several markets were closed and as outflows from the top physical gold exchange-traded fund continued to indicate bearish sentiment.
Spot gold was up 1 percent at $1,313.10 a troy ounce by 1329 GMT, after rising to $1,315.60 earlier, its highest since April 15. Liquidity is expected to be thin with London markets closed for the May Day holiday.
U.S. gold futures for June delivery were up $10.40 an ounce at $1,313.30.
A lack of liquidity and a strong close on Friday is helping drive prices higher, Afshin Nabavi, head of trading at MKS, said. "The Russian story is behind this move in gold and platinum, but it feels like it is running out of breath," he said. "I think $1,315 is toppish."
On Friday, the metal hit a one-week low of $1,276.60 after strong U.S. jobs data, but reversed losses to end the day up 1.3 percent on a sharp increase in the number of people dropping out of the workforce and rising Ukraine tensions.
Ukraine's Interior Minister drafted a new special forces unit into the southern port city of Odessa on Monday after what he called the "outrageous" failure of police to tackle pro-Russian separatists in a weekend of violence that killed dozens.
"Gold is trading near the highest in three weeks as Ukraine once again attracts some safe-haven demand," Saxo Bank's head of research Ole Hansen said.
"But the move so far has not been convincing, so we're still not sure whether it will stick," he added. "For now, let's see whether a foothold can be established above $1,300."
Gold's 200-day moving average, a key chart level, is located at that level. Traders said a break above there on Friday fuelled confidence in further gains.
CHINESE BUYERS ACTIVE
In the physical markets, Chinese buyers were active overnight, dealers said.
"We note that (Chinese) demand has improved marginally in the past two weeks, with the Shanghai Gold Exchange premium shifting from being well in the negative territory into a marginally positive territory around the $0.50 level," Standard Bank said in a note.
"This does signal that demand from especially China is likely to improve on dips below $1,300. However, we would also expect the SGE premium to move back into negative territory if gold moved to far above $1,300."
Weakness in investment has pressured gold in recent weeks. The SPDR Gold Trust, the world's largest gold ETF, said its holdings fell 2.70 tonnes to 782.85 tonnes on Friday, bringing its outflow for the week to nearly 10 tonnes.
Hedge funds and money managers cut their bullish bets in gold futures and options, data from the Commodity Futures Trading Commission showed on Friday.
Silver was up 0.9 percent at $19.60 an ounce, while spot platinum was up 0.9 percent at $1,445 an ounce and spot palladium was up 0.5 percent at $811.50 an ounce.
South Africa's Association of Mineworkers and Construction Union (AMCU) said on Monday its striking members had rejected the latest wage offer by the world's three biggest platinum mining companies.
(Additional reporting by A. Ananthalakshmi in Singapore, editing by William Hardy and Susan Thomas)
