PRECIOUS-Gold pares losses after ECB cuts rates

Jan Harvey and Clara Denina
Thursday, 7 Nov 2013 | 8:30 AM ET

* European Central Bank cuts interest rates to record low

* Stock markets climb, dollar jumps 1.1 pct vs euro

* U.S. GDP and nonfarm payroll report eyed

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LONDON, Nov 7 (Reuters) - Gold prices rose on Thursday after the European Central Bank cut interest rates to a record low, prompting a rally in stock markets, though gains were limited as the euro tumbled more than 1 percent against the dollar.

Ultra-loose monetary policy tends to benefit gold, as lower interest rates reduce the opportunity cost of holding non-yielding bullion, while stoking fears of inflation.

However, gold has proved sensitive recently to pressure from a stronger dollar. The U.S. unit hit a seven-week high against the euro in the wake of the ECB move.

Spot gold hit a high of $1,325.31 after the move and was up 0.2 percent at $1,320.93 an ounce at 1311 GMT, having earlier dipped as low as $1,310.96 an ounce. U.S. gold futures for December delivery were up $2.80 at $1,320.60.

"This is stimulus taking precedence over a stronger dollar," Saxo Bank's head of commodity strategy Ole Hansen said. "We now have easing bias in all of the three major centres (Japan, Europe and the United States) and that could further delay any talk of tapering in the U.S., hence the support for gold."

Gold prices have fallen 20 percent this year on expectations that the Federal Reserve would taper its economic stimulus programme. Investors are keenly awaiting key U.S. data this week for clues as to when this will happen.

U.S. July-Sept GDP data and initial jobless claims are due at 1330 GMT. But analysts say Friday's U.S. jobs report for October may provide the most telling insight into the impact of a government shutdown last month that may provoke an extended continuation of Fed bond-buying which undermines the dollar.

"The U.S. payrolls data is going to be important," Credit Suisse analyst Karim Cherif said. "A negative footprint would re-launch a discussion on when Fed tapering will start," he added.


Gold prices in euros jumped 1.4 percent after the move, its biggest one-day rise since mid-October. European stocks rose 1.3 percent to fresh five-year highs.

Gold investment interest firmed on Wednesday, with holdings of the SPDR Gold Trust, the largest gold-backed ETF, rising 2.1 tonnes to 868.42 tonnes - the first increase since Oct. 22.

But the fund, whose purchases of gold are a reflection of a rising investor interest in the metal, has seen over 450 tonnes in outflows this year, driving holdings to their lowest since early 2009.

Such outflows from gold ETFs have had a significant impact on prices this year. Expecting a scale back in stimulus measures, investors have been shifting money out of gold and into equities.

Spot silver was up 0.4 percent to $21.86 an ounce.

Spot platinum was up 0.2 percent to $1,465.49 an ounce, and spot palladium was down 0.7 percent to $756.72 an ounce, having hit its highest level since Aug. 15 at $762.25 in earlier trade.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Patrick Graham and Keiron Henderson)