* Snaps 3-day loss on report that China will buy IMF gold
* Dollar's drop in late trading also helps gold's recovery
(Recasts, updates prices, market activity to close of U.S.
session; new byline, dateline, previously LONDON)
By Barani Krishnan
NEW YORK, Feb 25 (Reuters) - Gold rose 1 percent on
Thursday, rebounding from two-week lows and snapping three days
of declines as investors scrambled to cover short positions
after a report that China will buy IMF-auctioned bullion.
Spot gold <XAU=>, which reflects the price of bullion, was
bid at $1,105.55 an ounce by 2:50 p.m. EST (1950 GMT), up from
$1,097.25 in New York late on Wednesday.
In the futures market, U.S. gold for delivery in April
<GCJ0> settled up $11.30 at $1,108.50 an ounce on the COMEX
metals division of the New York Mercantile Exchange.
Bullion and gold futures hit two-week lows during the
session as a stronger dollar extended the downtrend seen in
precious metals seen since Monday.
The dollar's drop against the euro <.DXY> in late trading
helped gold recover, [] along with talk that China was
interested in IMF bullion.
The uncertain outlook for the dollar and euro has drawn
central banks, including those of India and China, to diversify
their holdings, by boosting their positions in gold.
India was the biggest buyer in the sale of IMF gold last
year, snapping up 200 tonnes over two weeks, and boosting its
holdings to 10th largest among central banks. That helped gold
futures hit record highs above $1,220 an ounce.
The IMF said last week it would resume gold sales in the
open marketas part of a programme announced last year to
dispose of a total of 403.3 tonnes of gold, or about one-eighth
of its total stock. []
Rough & Polished, a Moscow-based industry website, reported
that China had "confirmed its decision to acquire 191.3 tonnes
of gold auctioned by the International Monetary Fund".
The story was not attributed to any source and could not be
verified by Reuters. But it shored up sentiment in a market
eager for change after three straight days of losses.
"The market was feeling really rather heavy up until that
(report) came out," said Sterling Smith, futures analyst at
Country Hedging Inc. in St. Paul, Minnesota.
"From here, we need to find out if this is true, whether
China is actually buying IMF gold and whether they are going to
buying more than has been reported," Smith said.
Demand for physical gold has been mixed lately.
The world's largest gold exchange-traded fund, New York's
SPDR Gold Trust <GLD>, reported no change in its holdings on
Wednesday. The fund has seen outflows of 26.7 tonnes so far
this year, against inflows of 248.75 tonnes in the same period
of 2009.
But the World Gold Council told a news conference in
Beijing that gold demand from the top two global consumers,
India and China, had started strongly in 2010. []
Indian jewelers were buying regularly and tighter Chinese
monetary policy was not affecting purchases, it said.
India's February gold imports are expected to have risen to
30-35 tonnes, according to the head of Bombay Bullion
Association Suresh Hundia, from 7.9 tonnes in February 2009.
[]
Such data prompted a bullish outlook from some traders.
"I think of all the metals, precious and base, gold is the
only one I really I want to be long on at this point," said
Matthew Zeman, head of trading with LaSalle Futures Group in
Chicago. "As people continue to lose faith in fiat currencies,
that's going to be more and more supportive for gold."
Elsewhere, industry insiders told Reuters that scrap gold
volumes in the Middle East this year are expected to be lower
than in 2009 as prices ease from peak levels. []
(Additional reporting by Jan Harvey in London; Editing by
David Gregorio)
