Gold surged to a three-week high on Friday, boosted by the prospect of further purchases by China, after the country revealed it had been buying the precious metal since 2003.
Spot gold was bid at $909.75 (U.S.) an ounce at 0918 GMT from $902 late in New York on Thursday. Earlier on Friday it hit $912.80, a rise of more than 5 per cent this week and the highest since April 2.
China has raised its gold reserves by three-quarters since 2003 to 1,054 tonnes, confirming speculation that it had been buying in the market for some years.
"The massive accumulation of foreign exchange reserves meant gold as a proportion of total reserves had fallen below 1 per cent compared with a norm of about 2 per cent," said Michael Lewis, head of commodities research at Deutsche Bank.
"It could be a short term supportive story because they want to get back to where they were with quite a substantial amount of purchasing for their reserves."
China's reserves are now the fifth biggest in the world, with only six countries holding more than 1,000 tonnes.
It needs to buy more and some of its purchases could be in the spot market, but UBS thinks there is another way for the country China to quickly boost its gold holdings "The proposed IMF sales of 403.3 tonnes of gold represents the biggest opportunity for China to buy a large amount of gold in one transaction," it said.
"China could buy gold in the open market and add to its holdings, although it would only be able to do so at a slow and steady rate: any move to buy large amounts of gold would have a large market impact."
China's news overshadowed a rise in equity markets, which in recent weeks has dampened investor enthusiasm for gold, seen in the holdings by the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust .
SPDR's gold holdings fell to 1,104.45 tonnes as of April 23, down 1.53 tonnes or 0.1 per cent from the previous day, extending a decline that began last week in the biggest unwinding of positions seen since September.
A 44 per cent surge in SPDR's holdings since the start of the year had helped underpin gold prices, but the last increase was nearly a month ago.
However traders say renewed dollar weakness will also help sentiment in the gold and precious metals markets.
Silver, tracking gold, rose to $12.99 an ounce, the highest since April 15 and was last bid at $12.75, up from $12.74 late in New York on Thursday.
Palladium was bid at $233 from $230.50 and platinum at $1,177 from $1,178.50 on Thursday.
Prices of platinum used in autocatalysts have staged a recovery in recent days on talk of buying by car makers, glass makers and investment demand. But expectations are the rally will be limited and likely to reverse.
"The gains are premature, there is no end in sight to the carnage in the auto sector, no amount of incentives are going to significantly increase demand for new cars in this environment," a London-based trader said.
Latest news came from the UK, where data showed car output in March fell 51.3 per cent from a year ago.