LONDON: Gold was trading above a four-month low on Thursday ahead of a European Central Bank meeting but looked vulnerable to more losses if the central bank meets expectations to cut rates, a move that could weaken the euro against the dollar.
At its meeting on Thursday, the ECB is poised to impose negative interest rates on overnight depositors seeking to cajole banks into lending instead and to prevent the euro zone falling into Japan-like deflation.
Although a low interest rates environment should encourage investors to put money into non-interest-bearing assets like gold, analysts expect the metal will more likely respond to the weakening of the euro versus the dollar.
A stronger U.S. currency would make the dollar-denominated gold more expensive for holders of other currencies.
"The expectation is that there will be some sort of monetary stimulus measures, possibly accompanied by a rate cut," Mitsubishi Corp analyst Jonathan Butler said. "There is still potentially a safe-haven role for gold in a lower interest rates world, but overall in the short term that is going to be outweighed by the impact of FX."
"Of course a lot of this may already be built into the price ...we have seen pretty much a week of net selloffs and we seem to be approaching a level of support just above $1,240."
Spot gold was up 0.1 percent at $1,244.50 an ounce at 0955 GMT, not far from a four-month low of $1,240.61 hit earlier in the week.
U.S. gold futures for August delivery were unchanged at $1,244.50 an ounce.
The euro hovered near a four-month low, European shares were mixed and the dollar index held just below a four-month peak hit earlier in the week on firm U.S. borrowing costs.
The U.S. 10-year Treasury yields stood around 2.59 percent. Returns on U.S. bonds are closely watched by the gold market, given that the metal pays no interest.
Markets were also eyeing Friday's U.S. nonfarm payrolls to gauge the strength of the economy.
A Reuters survey of economists forecast that employers probably added 218,000 jobs to their payrolls last month. While that would be step down from April's robust 288,000 job gain, it would still be above the average for the preceding six months.
"The metal may get a short-term boost if US employment data this week give back some of the outsized gains of April but that is widely anticipated and the gold market is not running that heavily short, so we doubt that any rally will be sustained," Credit Suisse said in a note.
Data on Wednesday was mixed, showing that U.S. companies hired far fewer workers than expected in May, but an acceleration in services sector growth supported views the economy was regaining strength after sagging earlier this year.
South Africa's AMCU union has rejected a government wage increase proposal aimed at ending a crippling five-month strike by platinum miners, the Business Day newspaper reported on Thursday.
South Africa's new mining minister Ngoako Ramatlhodi had said on Wednesday that he hoped to resolve the strike this week.
Platinum was down 0.4 percent to $1,425.80 an ounce, while palladium dropped 0.3 percent to $830.55 an ounce and silver lost 0.1 percent to $18.75 an ounce.
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