Gold at three-week high as ECB comments lift euro, dollar falls

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By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold prices rose to a three-week high on Thursday after European Central Bank President Mario Draghi said ECB policymakers would discuss potential changes to the bank's bond-buying scheme in the autumn, lifting the euro to a 14-month high.

Draghi said the policymakers were unanimous in choosing not to change their guidance for monetary policy, and not to set a date for discussing changes to its stimulus programme. However, he flagged further discussions later in the year.

That was enough to spark a recovery in the euro after early losses while the U.S. dollar index fell to the lowest in 11 months, lifting gold prices. [FRX/]

"Draghi's speech was essentially dovish, emphasizing a 'very substantial degree of accommodation' and reaffirming the commitment to quantitative easing," Mitsubishi analyst Jonathan Butler said.

"The ECB will defer the decision on QE tapering until the autumn - the euro gained ground on this news and the resulting fall in the dollar helped gold recover from some of its earlier losses," he added.

Spot gold was up 0.4 percent at $1,244.92 an ounce by 2:17 p.m. EDT (1817 GMT), after rising to $1,247.48, the highest since June 30.

Technically, the market has strengthened after holding above the 200-day moving average for the fourth straight session, though the 50-day and 100-day moving averages were seen posing resistance right around the day's high.

U.S. gold futures for August delivery settled up 0.3 percent at $1,245.50.

The maintenance of loose monetary policy in the euro zone could be seen as either positive or negative for gold, depending on whether demand responds positively to a persistently low opportunity cost of holding the non-yielding metal or more negatively to a weaker euro.

"The news that (Robert) Mueller's investigation of Donald Trump was being extended, that seemed to give the market a boost," said Bill O'Neill, co-founder of LOGIC Advisors, about the special counsel and U.S. president.

"I have never seen in my lifetime a president have so much turmoil surrounding him. It's getting into people's minds and the fear that maybe something might happen."

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , fell to the lowest level since early February.

Among other precious metals, silver was up 0.7 percent at $16.35 an ounce after touching $16.42, the highest since July 3.

Platinum was 0.7 percent higher at $924.75 an ounce, while palladium was down 1.2 percent at $845.75 an ounce, in sharp contrast to Wednesday's three-week high of $872.25.

(Additional reporing by Nithin Prasad and Arpan Varghese in Bengaluru; editing by Greg Mahlich and Diane Craft)