Gold at three-week high as ECB comments lift euro, dollar falls

By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold prices rose to a three-week high on Thursday after European Central Bank President Mario Draghi said ECB policymakers would discuss potential changes to the bank's bond-buying scheme in the autumn, lifting the euro to a 14-month high.

Draghi said the policymakers were unanimous in choosing not to change their guidance for monetary policy, and not to set a date for discussing changes to its stimulus programme. However, he flagged further discussions later in the year.

That was enough to spark a recovery in the euro after early losses while the U.S. dollar index <.DXY> fell to the lowest in 11 months, lifting gold prices. [FRX/]

 

"Draghi's speech was essentially dovish, emphasizing a 'very substantial degree of accommodation' and reaffirming the commitment to quantitative easing," Mitsubishi analyst Jonathan Butler said.

"The ECB will defer the decision on QE tapering until the autumn - the euro gained ground on this news and the resulting fall in the dollar helped gold recover from some of its earlier losses," he added.

Spot gold > was up 0.4 percent at $1,244.92 an ounce by 2:17 p.m. EDT (1817 GMT), after rising to $1,247.48, the highest since June 30.

Technically, the market has strengthened after holding above the 200-day moving average for the fourth straight session, though the 50-day and 100-day moving averages were seen posing resistance right around the day's high.

U.S. gold futures for August delivery settled up 0.3 percent at $1,245.50.

The maintenance of loose monetary policy in the euro zone could be seen as either positive or negative for gold, depending on whether demand responds positively to a persistently low opportunity cost of holding the non-yielding metal or more negatively to a weaker euro.

"The news that (Robert) Mueller's investigation of Donald Trump was being extended, that seemed to give the market a boost," said Bill O'Neill, co-founder of LOGIC Advisors, about the special counsel and U.S. president.

"I have never seen in my lifetime a president have so much turmoil surrounding him. It's getting into people's minds and the fear that maybe something might happen."

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , fell to the lowest level since early February.

Among other precious metals, silver > was up 0.7 percent at $16.35 an ounce after touching $16.42, the highest since July 3.

Platinum > was 0.7 percent higher at $924.75 an ounce, while palladium > was down 1.2 percent at $845.75 an ounce, in sharp contrast to Wednesday's three-week high of $872.25.

(Additional reporing by Nithin Prasad and Arpan Varghese in Bengaluru; editing by Greg Mahlich and Diane Craft)