Gold pared gains on Thursday after the European Central Bank held interest rates steady despite speculation in some quarters for a growth-boosting cut, but was supported by a stock market rally which cut selling of the metal to cover losses elsewhere.
Spot gold was at $1,640.59 an ounce at 1209 GMT, little changed from the level it traded at late in New York on Wednesday, but off an earlier high of $1,654.55. Trade is expected to be cautious before the ECB press conference later.
"In the short term, the gold price is consolidating after the recent correction," said BNP Paribas analyst Anne-Laure Tremblay. "Another sharp downside move would be most likely triggered by another episode of extreme risk aversion." She said gold's longer-term fundamentals remained supportive.
Gold saw its biggest decline in nearly three years last month as pressurized selling to cover heavy stock market losses pulled prices more than 20 percent from record highs and prompted a period of intense volatility.
European shares trimmed gains along with gold after the ECB announcement. The ECB's decision was broadly expected, although some analysts had speculated they could cut rates after two hikes earlier this year stoked concerns that the euro zone economy would struggle to recover from its slowdown.
Is expected, however, to launch a set of fresh liquidity measures to help banks to weather the euro zone's worsening debt storm.
Concerns over the outlook for the euro zone's stubborn debt crisis were a key factor pushing gold to a record $1,920.30 an ounce last month.
"It is extremely hard to see where the solution will come from," said VM Group analyst Carl Firman. "I think (the euro zone authorities) will be forced into a solution, but the volatility is based around whether it will be sufficient, or another stop-gap."
"We need to see some more definitive news, and in the meantime, we will have a hell of a lot of volatility across the markets," he said.
U.S. gold futures for December delivery were up $3.60 an ounce at $1,645.20. Sterling priced gold rose 2 percent to 1,082.04 pounds an ounce after the Bank of England announced a second round of quantitative easing.
VENEZUELA REPATRIATES GOLD
Venezuela's central bank chief said it will begin repatriating its gold reserves from Western nations by mid-November. President Hugo Chavez announced in August that the nation would bring home almost all its $11 billion in gold reserves held abroad.
London clearing house LCH.Clearnet said on Thursday it will accept gold bullion as collateral by the end of this month, subject to regulatory approval.
Oil climbed more than $1 a barrel and base metals rose strongly as stock markets rebounded.
Other precious metals rebounded, with silver rising 1.7 percent to $30.92 an ounce. Spot platinum was up 0.7 percent at $1,496.49 an ounce, while spot palladium was up 2.4 percent at $584.22 an ounce.
"While Chinese appetite for gold appears to be little affected by the holidays, platinum interest out of China has been sorely lacking," said UBS in a note on Thursday.
"The lack of physical purchases could not have come at a worst time, given the heaviness across industrial metals and among risk assets in general," it added.
"This has aggravated platinum's widening discount to gold, the platinum: gold ratio falling to fresh multi-decade lows mostly under 0.90 over the past couple of days. This trend is likely to continue given the lack of clear drivers that could spur PGM demand in the near term."
(Reporting by Jan Harvey; Editing by William Hardy)
