By Jan Harvey
LONDON (Reuters) - Gold fell for a third day on Thursday on expectations of further monetary stimulus from the European Central Bank, which put the euro under pressure and pulled the metal further from last week's 13-month high.
The ECB is tipped to announce its second stimulus package in three months later in the day, as fears grow that low energy costs are feeding into wages and prices, potentially perpetuating ultra-low inflation.
Spot gold was down 0.5 percent at $1,246.26 an ounce at 1031 GMT, while U.S. gold futures for April delivery were down $10 an ounce at $1,247.40.
"The movement in gold is associated with uncertainty," Ava Trade's senior market analyst Naeem Aslam said.
"Too much easing or pushing the deposit interest rate into deep negative territory would create qualms amid investors about the stability of the banking sector. Therefore, the bank will tread immensely carefully."
Expectations for further easing pressured the euro for a third day versus the dollar, with the single currency down 0.3 percent. Euro zone bond yields dipped and European shares held in a tight range ahead of the meeting.
While non-yielding gold tends to benefit from ultra-low interest rates, strength in the dollar versus the euro generally translates into losses for dollar-denominated bullion.
"Weighing on the gold price are the firmer U.S. dollar, rising stock markets and higher U.S. bond yields," Commerzbank said in a note. "The slide in the gold price in euros could at least come to an end this afternoon if the ECB further loosens its monetary policy."
If the ECB disappoints again, as it did in December when policymakers delivered less easing than had been expected, the euro could recover and gold rebound, analysts said.
The metal has benefited this year from expectations that the Federal Reserve would hold off further interest rate hikes after raising them for the first time in nearly a decade in December.
Headwinds in the global economy are likely to deter U.S. policymakers from further increases as central banks elsewhere ease policy to boost their shaky economies, analysts say.
Gold rose 20 percent from the start of the year to last week's peak of $1,279.60, its highest since Feb. 2015.
Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, resumed their upward trend after a brief hiatus, rising 2.1 tonnes on Wednesday after a 2.4-tonne outflow on Tuesday.
Silver was flat at $15.28 an ounce, platinum was down 0.3 percent at $975.50 and palladium was down 0.9 percent at $558.35.
(Additional reporting by Manolo Serapio Jr., editing by David Evans)
