By Clara Denina
LONDON (Reuters) - Gold rebounded above $1,400 an ounce on Friday as strong buying of coins and bars continued, primarily in Asia, but prices were still on course for a fourth week of losses after a brutal sell-off.
Analysts said more weakness could be on the cards, including further outflows from exchange-traded funds due to nagging worries about central bank sales and the possibility of economic recovery, which would reduce the need for further monetary stimulus.
Gold rose 0.8 percent to $1,401.70 by 1455 GMT. The metal hit a two-year low of $1,321.35 on Tuesday and was still set for a weekly loss of 5.1 percent.
U.S. gold futures for June delivery were also up 0.7 percent to $1,402.20.
"We suspect there could be some short-covering today," HSBC analyst Howard Wen said.
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Short-covering occurs when traders are forced to buy an asset they had agreed to sell at a future date in the expectation its price would fall.
"We are also seeing a huge amount of interest in gold coins and bars especially out of Asia, which should continue to be quite positive and provide some support."
Gold investors were awaiting the 1930 GMT release of U.S. CFTC data that will provide a clearer picture of speculative activity in the week to Tuesday 16 April.
RETAIL RUSH
The drop in prices has ignited a spate of buying in gold coins, nuggets and bars, sending premiums for gold bars to multi-month highs in Asia.
Dealers said they saw heavy volumes of physical buying, even though prices had gained more than $100 since hitting a two-year trough earlier this week. Buying improved in top consumer India after a lacklustre start.
"In retail physical markets there have been exponential increases in premiums globally," MKS Capital said in a note.
"High premiums mean supply is drying up, and it will show up next in the paper gold markets, which could squeeze some week spec shorts out in the near term."
For a 24-hour gold chart analysis: https://bsmedia.business-standard.comgraphics.thomsonreuters.com/WT1/20131904100839.jpg
Inflation adjusted gold price timeline (since 1970): http://link.reuters.com/jem47t
Gold demand in China: http://link.reuters.com/bat34t
Gold in currencies: http://link.reuters.com/cyv95s
Gold's biggest ever daily fall in dollar terms on Monday caught gold bulls, speculators and veteran investors by surprise, and long-term holders were still exiting positions.
Holdings of the SPDR Gold Trust, the world's largest gold-backed ETF, are at their lowest in three years after falling by a further 0.2 percent to 1,133 tonnes on Thursday.
Gold has ignored tension in the Korean peninsula, and investors are increasingly convinced the U.S. Federal Reserve will look to end its bullion-friendly bond-buying programme by the end of 2013 or beginning of 2014.
The metal rallied to an 11-month high in October last year after the Fed announced a third round of aggressive monetary stimulus, raising fears it would stoke inflation.
A plan by Cyprus to sell excess gold reserves to raise around 400 million euros also led to speculation other indebted euro zone countries could follow suit.
In wider markets, European and U.S. shares and oil prices rebounded on Friday after a sell-off this week that was triggered by signs of sluggish global growth.
Other precious metals benefitted from gold's gains, with silver up 0.3 percent to $23.30 and palladium 0.2 percent firmer at $668. Platinum reversed earlier gains to trade down 0.2 percent at $1,419.50.
(Additional reporting by Lewa Pardomuan in Singapore; Editing by Veronica Brown and Alison Birrane)