Gold dips as dollar climbs ahead of ECB, U.S. payrolls

By Jan Harvey

LONDON (Reuters) - Gold retreated on Wednesday, snapping two days of gains, as the dollar rose against the euro ahead of expected further stimulus from the European Central Bank on Thursday, and U.S. payrolls data later in the week.

Gold prices hit near six-year lows last week, weighed down by expectations that the Federal Reserve will raise interest rates for the first time in nearly a decade this month, even as the ECB eases policy further.

The Fed has tied the timing of its rate hiking cycle to the strength of U.S. data, making this week's payrolls report particularly important. Rising rates would lift the opportunity cost of holding non-yielding gold, while boosting the dollar.

Spot gold was down 0.2 percent at $1,066.76 an ounce at 1254 GMT. Last week it slid to its lowest since February 2010 at $1,052.46. U.S. gold futures for February delivery were up $2.60 an ounce at $1,066.10.

"There was some repositioning from the lows which coincided with month-end on Monday, and a bit of a bounce higher yesterday," Mitsubishi analyst Jonathan Butler said. "Now we appear to have paused around the $1,070 level."

"Essentially the ECB and Friday's non-farm payrolls look quite negative for precious metals, given the likelihood of further strengthening of the dollar on the back of potential quantitative easing in the euro zone, and further U.S. jobs growth," he said. "But as always, precious could jump higher if those expectations are disappointed."

The euro fell on Wednesday to hold just above a 7-1/2 month low against the dollar as long-term investors raised their bets against the single currency before Thursday's ECB meeting, where markets are expecting fresh stimulus measures.

The euro extended losses after data showed euro zone inflation was unchanged in November against expectations of a slight increase, maintaining pressure on the ECB to ease monetary policy further.

Precious metals house MKS said in a note that interest in gold was muted overnight in Asia, home of the world's largest bullion consumers, China and India.

"Volumes were back at the lower end of the spectrum after yesterday's flurry of activity, with Comex gold turning over 11,000 lots of (U.S. gold futures) in the first six hours of trade compared with about 24,000 lots yesterday," it said.

Silver was down 0.3 percent at $14.16 an ounce, while platinum traded up 1.1 percent at $847.50 an ounce and palladium was flat at $538.18 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by Susan Thomas and David Evans)