By Swati Verma
REUTERS - Gold prices edged up on Thursday, buoyed as a fall in the dollar along with long-dated U.S. Treasury bond yields ahead of a European Central Bank meeting prompted safe-haven buying of the precious metal.
A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies.
Spot gold had risen 0.3 percent to $1,177.06 an ounce by 0255 GMT.
U.S. gold futures were up 0.1 percent at $1,179 an ounce.
The ECB will extend its already generous asset buys on Thursday, aiming to boost stubbornly weak price growth, but with much of its firepower exhausted it may also debate sending a token signal about the eventual end of such purchases.
"Even if the precious metal responds positively to the ECB's expected easing, any advance could be short-lived given that we have a Fed meeting in just over a week," INTL FCStone analyst Edward Meir said in a note.
Strengthening expectations that the Federal Reserve may increase interest rates in its policy meeting next week will likely weigh on gold, as rising U.S. rates raise the opportunity cost of holding non-yielding bullion.
Interest rates futures implied traders saw a 95 percent chance that the Fed would raise rates at its policy meeting next Tuesday and Wednesday, CME Group's FedWatch program showed.
"As we head into the FOMC, it is certain that the Fed will raise rates this time. I believe this is mostly priced into gold. We might still see some reaction and the recent low of $1,157 may be revisited again," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.
"Exchange traded funds (ETF) have sold off in a huge manner and global fund managers are shorting gold or reducing positions and the pressure on gold prices is mainly due to this."
Spot gold has so far fallen more than 12 percent from its post-U.S. election peak on Nov. 9.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped 0.72 percent to 863.67 tonnes on Wednesday from Tuesday. Holdings have fallen more than 8 percent since November.
The euro held firm near a three-week high versus the dollar on Thursday, as investors turned their attention to the ECB meeting, and as the greenback was dragged down by a drop in U.S. bond yields.
The dollar index, which measures the greenback against a basket of currencies, was down 0.2 percent at 100.07.
Elsewhere, silver gained 0.3 percent to $17.15 an ounce after rising over 2 percent in the previous session.
Palladium climbed 0.4 percent at $735.80 and platinum added nearly 1 percent to $945.10.
(Reporting by Nallur Sethuraman and Swati Verma in Bengaluru; Editing by Joseph Radford)
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