Gold rose on Thursday as the European Central Bank cut its interest rate for the first time in 10 months, affirming the metal's inflation-hedge appeal a day after the Federal Reserve said it would keep up its bond purchases to spur growth.
The metal was lifted by the ECB's decision to lower its key rate by a quarter percentage point to a record low 0.5 percent, and it held out the possibility of further policy action to support the recession-hit euro zone economy.
Bullion had lost $225 per ounce between April 12 and 16 as some feared the Fed might withdraw its stimulus. Since then, strong physical demand around the world has cut that drop by more than half.
On Wednesday, the Federal Open Market Committee said that it would continue buying $85 billion in bonds each month to keep interest rates low and spur growth.
"The gold market is responding to the fact that the FOMC reiterated its easy monetary policy and left open the possibility of further expansion,'' said Brad Yates, metals trader at NTR Bullion Group.
"It's a slow day for U.S. physical demand with prices recovering, however," Yates said.
Spot gold rose 0.7 percent to $1,467 an ounce, having earlier risen as high as $1,473.40.
On Wednesday, the metal had pared losses after the FOMC statement but still ended more than 1 percent lower.
U.S. gold futures settled up $21.40 to $1,467.60 an ounce, with trading volume on track to finish below its 30-day average, preliminary Reuters data showed.
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Easy monetary policy around the world extended gold's bull run to a 12 consecutive year last year, as investors bought bullion as a hedge against inflation and economic uncertainties brought by unprecedented stimulus by central banks after the 2008 economic crisis.
A nearly 1 percent rally in the dollar index, and after the ECB rate cut and Wall Street's strong gains, however, kept gold from rising further, traders said.
Investors turned their attention toward the U.S. non-farm payrolls report for April on Friday, which could give signals for the longer-term prospects for the Fed's monetary stimulus.
On Thursday, data showed the number of Americans filing new jobless benefits claims fell sharply last week to its lowest level since the early days of the 2007-09 recession, a sign the job market is still healing even though the economy remains weak.
Physical Market Slows
Physical market activity slowed after a recent surge in the purchase of gold bars, coins and nuggets across Asia sent premiums for gold bars to multi-year highs.
Gold's sell-off last month has widened a disconnect between funds that sold on dissatisfaction over bullion's underperformance and individual investors who could not get enough physical gold coins and bars at bargain prices.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.3 percent to 1,075.23 tons on Wednesday, the lowest since September 2009.