London - Gold eased on Thursday, extending the previous day's more than 1 percent drop, after European Central Bank President Mario Draghi's comments that the bank may act to stem falling inflation at its June meeting knocked the euro.

Prices remained underpinned, however, by lingering concerns over the stand-off between government forces and pro-Russian separatists in Ukraine, and strong chart support at the metal's 100-day moving average

Spot gold was down 0.1 percent at $1,288.10 an ounce at 16:31 SA time, while US gold futures for June delivery were down 40 cents an ounce at $1,288.50.

The dollar rose against the euro on Thursday after Draghi's comments, erasing earlier losses that saw the US unit fall to a 2-1/2 year low.

Many economists expect a downward revision in the ECB staff's inflation forecasts, which could open the way for more stimulus such as an interest rate cut.

“The greenback is sharply higher and bullion is retracing earlier gains,” Andrey Kryuchenkov, an analyst at VTB Capital, said.

“ECB chief Mario Draghi's statement that the council was ready to act (on inflation) next time did it for the euro.”

“(But) while a sharp reversal in the euro weighed on gold today, it still remains within that $1,280 to $1,310 range, as some geopolitical concerns remain.”

Pro-Moscow separatists in eastern Ukraine ignored a public call by Russian President Vladimir Putin to postpone a referendum on self-rule, declaring they would go ahead on Sunday with a vote that could lead to war.

On Wednesday gold posted its biggest daily fall since April 15 as traders frustrated by its failure to break above $1,315 took Putin's assertion that he was willing to negotiate over Ukraine as a signal to sell.

“If this conflict is going to calm down and the US economy remains positive, it should be a positive environment for stocks and negative for gold, as investors go back to riskier markets where the return prospects are better than for gold,” Peter Fertig, a consultant at Quantitative Commodity Research, said.


Despite yesterday's price drop, buying interest among Chinese dealers on the Shanghai Gold Exchange was relatively muted overnight, Swiss bullion house MKS said in a note.

“The market was expecting them to come in as buyers, yet despite the SGE premium sitting at its highest point in some time ($3-4 premium over Loco London), it failed to attract any reasonable buying interest,” it said.

Silver underperformed the other precious metals, falling 0.8 percent to $19.15 an ounce.

The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, edged back up to 67.1 from 66.8 on Wednesday.

Last week it hit its highest since August 2010 at 67.6, putting silver at its cheapest compared to gold in more than 3-1/2 years.

Spot platinum was down 0.2 percent at $1,425.60 an ounce, while spot palladium was up 0.5 percent at $799.75 an ounce.

World no. 2 platinum producer Impala Platinum said on Thursday it was asking its striking South African employees to vote by text message this week on its latest wage offer and whether they wanted to return to work.

A miners' strike in major producer South Africa has been running since January 23. - Reuters