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Gold extends gains after ECB, lower dollar

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lady luck   Thursday, 01/12/12 10:19:44 AM
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Gold extends gains after ECB, lower dollar

SAN FRANCISCO (MarketWatch) — Gold futures rose Thursday, on track for a third session of gains as a trickle of safe-haven flows returned to the market after the European Central Bank warned of “substantial” downside risks for the euro zone’s outlook and the dollar traded lower.

Gold for February delivery GC2G +1.27% added $19.40, or 1.2%, to $1,659 an ounce on the Comex division of the New York Mercantile Exchange. A close around these levels would be gold’s highest since Dec. 13.

The metal ended at its best in four weeks in floor trading Wednesday, helped by a jump in Chinese gold imports. Read more on Wednesday's gold session.

The euro zone will most likely experience a short recession, according to economists in a new survey. Photo: Getty Images.

“Gold remains very firm in contrast to the weakness-prone equity and commodities markets,” analysts with Commerzbank said in a note to clients.

Gold “is living up to its reputation as a safe haven, at least for the time being,” as some of the recent price weakness appeared to be over, they added.

Markets keyed in bond auctions in Spain and Italy. Their good results lifted the euro. Later Thursday, the European Central Bank met and left its key lending rate unchanged, as expected.

At a press conference after the rate decision, ECB President Mario Draghi said the euro zone’s outlook still faces high uncertainty and substantial downside risks, such as further intensification of tensions in the debt markets.

There are “tentative signs of stabilization,” but it was hard to make a confident judgment based on those preliminary data, Draghi said.

The decision to keep interest rates on hold Thursday was unanimous and the bank’s monetary stance remains accommodative, he said. “Uncertainty is very high and we will monitor all developments and we will stand ready to act.”

A weaker dollar also lent support to gold, with the dollar index DXY -0.60% , which measures the greenback against a basket of six other major currencies, slipping to 80.911 from 81.313 in North American trade late Wednesday. Read more on currencies.

A weaker greenback tends to encourage gold investors, as it makes the metal more affordable to holders of other currencies.

Most metals tracked gold higher, with silver for March delivery SI2H +2.26% up 66 cents, or 2.2%, to $30.55 an ounce.

April platinum PL2J +0.25% added $6.80, or 0.5%, to $1,504 an ounce. March palladium PA2H -0.09% declined $1.75, or 0.3%, to $643.90 an ounce.

March copper HG2H +3.10% turned higher, up 11 cents, or 3.1%, to $3.65 a pound.

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