Gold prices lift on ECB expectations

London (Oct 23)  Gold prices were higher on the London spot market on Friday, with the prospect of extra stimulus from the European Central Bank offering support to a metal that is typically used as a hedge against inflation.

Spot gold was up 0.6 per cent at $US1,172 a troy ounce in morning European trade, hitting a two-day high earlier in the session at 1,175 an ounce.

ECB President Mario Draghi said on Thursday that the bank was "open to a whole new menu of monetary-policy instruments" to help jump-start the region's economy, which has been grappling with ultralow inflation and a lukewarm recovery. Investors are anticipating an expansion of the ECB's EUR60 billion ($US68 billion) a month bond-buying program, known as quantitative easing, or QE.

Gold is expected to benefit from such stimulus, as investors seek out the metal as a store of value amid concerns that the extra money supply will stoke inflation.

"The prospects of the ECB extending and increasing its monetary stimulus in Europe has helped market sentiment," said William Adams, head of research at Fastmarkets.

Looking ahead to next week, the market will be watching for signals on US monetary policy from the Federal Open Market Committee meeting starting on Tuesday. Analysts are also waiting for a key meeting of the Chinese government for direction on macro issues in the world's second biggest economy.

"[We have] the Fed meeting next week and the Chinese plenum discussing the five-year plan ...[but] it's US monetary policy that's the key driver," said Robin Bhar, head of metals research at Société Générale.

In recent months, the gold price has been closely tied to expectations of US monetary policy. The Federal Reserve has indicated that a rate rise will take place before year-end, but many market participants are more convinced that it will happen early in 2016.

A rate increase would likely strengthen the dollar and make the precious metal more expensive to buy for those holding weaker currencies. Also, gold finds it more difficult to compete with yield-bearing assets, like Treasurys, when rates are higher.

All the other precious metals were higher at the end of the week. Spot silver was up 1 per cent at $US15.974 an ounce, spot platinum was up 0.1 per cent at $US1,010 an ounce and spot palladium was up 1.2 per cent at $US691 an ounce.

Source: Business-Spectator