Gold rose about 1 percent early on Thursday, and seemed headed for its biggest gain in three weeks, after the European Central Bank cut interest rates to record lows and unveiled a package of new stimulus measures. Dealers said the market could gain further on Friday if US job numbers for May turn out to be surprisingly low.
In Thursday's session, those who had bet against bullion before the ECB rate cuts rushed to cover short positions as the shiny metal held firmly above support at $1,240 an ounce. "I find it really quite logical that gold has risen today," said Dennis Gartman, an investor in the precious metal and the author of the market commentary "The Gartman Letter".
"The ECB's policy changes were very expansionary and that on balance is supportive of gold, all things being equal. And I think more is coming." At 12:00 p.m. EDT (1600 GMT), bullion's spot price was up 0.9 percent at $1,254.20 an ounce, and looked to be headed for its biggest gain since May 14. The session high was $1,256.50, while the low of $1,240.90 was above the four-month bottom of $1,240.61 set earlier in the week.
US gold futures' most-active contract, August, rose 0.8 percent to $1,254.80 an ounce. Saxo Bank's head of commodities research, Ole Hansen, said gold could probably rise another percent or so towards $1,268 "before resistance is met".
The ECB lowered the deposit rate to -0.1 percent, meaning it will effectively charge banks for holding their money overnight. It cut its main refinancing rate to 0.15 percent, and the marginal lending rate - or emergency borrowing rate - to 0.40 percent. ECB chief Mario Draghi later unveiled a package of measures to stimulate the euro zone economy.
The dollar, which often determines direction for gold, did little after racing to a four-month high of $1.3504 to the euro after the ECB announcement. The dollar index, tied to a basket of currencies, was down 0.2 percent at 80.4962. Among other precious metals, silver gained 1.5 percent to $19.04 an ounce. Platinum climbed 0.5 percent to $1,436.99 an ounce and palladium rose 0.3 percent to $835.75 an ounce after a South African mine workers union reportedly rejected government wage increase plans aimed at ending a five-month strike.
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