SINGAPORE Gold edged up on Wednesday, supported by demand from China and a tight physical market, but gains were capped by strong equities and a drop in bullion exchange-traded fund holdings to their lowest in four years.
China's net gold imports from Hong Kong hit a record in March and the prospect of surging demand in the coming months may further support bullion prices, which have been hurt by continued ETF outflows after a historic price drop last month.
"There's continuous liquidation on the ETFs which keeps gold under pressure. Sentiment is not that good," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
Gold hit a low around $1,447 an ounce before bouncing to $1,454.21 by 0626 GMT, up $2.22.
Although gold started rising after China's trade data showed a steady recovery in the world's No.2 economy, dealers said the gains were due to bargain hunting and tight physical supply.
"Trading will be range bound," said Leung, who expects bullion to move between $1,435 to $1,485.
U.S. gold was at $1,453.60 an ounce, up $4.80.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.42 percent to 1,057.79 tonnes on Tuesday. In terms of ounces, ETF holdings dropped to 34,008,852 ounces -- the weakest since early 2009.
Cash gold has dropped more than 13 percent so far this year, after posting annual gains in the past 12 consecutive years as easy monetary policy prompted investors to buy bullion.
TIGHT PHYSICAL MARKET
The physical market remained tight given a recent surge in demand for gold bars, coins and nuggets after prices dropped to a more than two-year low in mid-April.
"There's still a shortage in the physical metal, which is why premiums are at very high levels. We can say premiums for gold bars are at $3.50 an ounce," said a dealer in Hong Kong.
The physical market in Singapore was less active on Tuesday, with consumers staying on the sidelines after a recent rush.
"Supply is indeed tight and I heard people in Hong Kong even quoted premiums at $4 to $4.50. Demand from Indonesia and Thailand has subsided, and in fact there's some selling today from their side," a dealer in Singapore said.
Gold also drew support from promising China data.
Net gold flows from Hong Kong to China, the world's No. 2 gold consumer after India, jumped to 223.52 tonnes in March from 97.11 tonnes in February, smashing a previous record of 114.37 tonnes in December.
China also reported that its exports rose 14.7 percent in April from a year ago while imports grew 16.8 percent, easing some of the concerns about weakness in the recovery of its economy.
In other markets, Asian shares rose to their highest in nearly two years on Wednesday, as strong Chinese trade data added to positive sentiment already fed by record highs in global equities overnight.
(Editing by Tom Hogue and Himani Sarkar)