Gold rises 1 percent on report China to buy IMF gold

By Barani Krishnan

NEW YORK (BestGrowthStock) – 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, 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 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, (USD/: ) 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 tons 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 markets part of a program announced last year to dispose of a total of 403.3 tons 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 tons 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, reported no change in its holdings on Wednesday. The fund has seen outflows of 26.7 tons so far this year, against inflows of 248.75 tons 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 tons, according to the head of Bombay Bullion Association Suresh Hundia, from 7.9 tons 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.

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(Additional reporting by Jan Harvey in London; Editing by David Gregorio)

Gold rises 1 percent on report China to buy IMF gold