* Gold down 0.6 percent after 1 pct overnight gain
* Chinese premiums fall to $4/ounce; volumes thin
* Volatile pricing expected with China away for holiday
By A. Ananthalakshmi
SINGAPORE, Jan 30 Gold failed to hold overnight
gains on Thursday as support from major buyer China faded ahead
of the Lunar New Year holiday, offsetting safe-haven bids
following weaker equities and another cut in U.S. stimulus
Markets in China - the world's biggest buyer of gold - are
closed from Friday for a week, but trading had already quietened
Bullion purchases from the mainland were strong in the run
up to the holiday as gold is often bought for good fortune.
Subdued demand from China, usually the biggest support for
prices during Asian hours, took the sheen off the metal's
safe-haven appeal, even as investors shied away from emerging
markets and equities. Other safe-havens such as the yen gained.
"The strong buying interest from China seen in the first
weeks of January looks set to abate after the New Year
festivities," Commerzbank analysts said in a note, adding that
prices could come under more pressure in the near term.
Traders have said that gold would not be able to sustain any
rallies with China out of action.
Spot gold had fallen 0.6 percent to $1,260 an ounce
by 0723 GMT, after gaining nearly 1 percent on Wednesday. Silver
declined 1.3 percent, tracking gold.
Premiums for 99.99 percent purity gold on the
Shanghai Gold Exchange fell to $4 an ounce on very thin volumes,
from $5.50 an ounce on Wednesday. They were as high as $20
earlier this month.
Volumes traded on the Shanghai Gold Exchange were just 1.5
tonnes on Thursday, compared with Wednesday's 8.4 tonnes and
Tuesday's 14 tonnes.
SPDR Gold Trust, the world's largest gold-backed
exchange-traded fund, saw a rare inflow of fresh investment on
Wednesday with holdings increasing by 2.10 tonnes to 792.56
tonnes. But that figure is still near a five-year low.
"The gold price should only start a sustained upwards
movement around the middle of this year. A sustained price rally
would require an end to the ETF outflows, which we expect to
occur in the second half of this year," Commerzbank said.
The Fed on Wednesday said it would trim its monthly bond
purchases by another $10 billion as it stuck to a plan to wind
down its extraordinary economic stimulus despite recent turmoil
in emerging markets. It had announced a similar cut in December.
Gold dropped 28 percent last year on an improving economy,
and in anticipation of the Fed scaling back on its stimulus.
"While the implications behind less loose monetary policy or
policy tightening is theoretically negative for gold, this may
have largely been priced into the bullion markets," HSBC
analysts said in a note.
In the near-term, gold prices are likely to be more volatile
with the Lunar New Year holiday staring on Jan. 31, they said.
PRICES AT 0723 GMT
Metal Last Change Pct chg
Spot gold 1260 -7.79 -0.61
Spot silver 19.48 -0.26 -1.32
Spot platinum 1398.49 -9.51 -0.68
Spot palladium 713.47 1.47 0.21
Comex gold 1260 -2.2 -0.17
Comex silver 19.51 -0.042 -0.21
COMEX gold and silver contracts show the most
(Reporting by A. Ananthalakshmi; Editing by Joseph Radford and