Gold steady near $940 ahead of ECB decision; record oil prices support

LONDON (3 July) Gold was steady near $940 per ounce on Thursday morning in London ahead of the key interest rate decision from the European Central Bank.

The precious metal has been supported by heightened inflation fears stoked by record oil prices, which on Thursday breached $146 a barrel in London for the first time ever.

Gold has also taken a boost from weakness in the U.S. dollar, with the precious metal serving as an alternative investment to the most common form of foreign currency reserves, as well as a hedge against rising inflation.

Trade has been steady so far on Thursday as investors wait for the result of the ECB's interest rate decision at 12:45 p.m. BST. While a 25 basis point increase is widely expected, the tone of ECB President Jean-Claude Trichet's following press conference could set the future direction for the dollar against the euro.

"The tone of Trichet in his press conference that will follow is extremely important," said UBS analyst John Reade. "If he is hawkish and signals further rate hikes, the gold will be taken higher by euro/dollar."

The dollar slumped to a two-month low against the euro on Wednesday, and is currently sitting close to $1.59 against the single currency.

At 10:58 a.m. BST, spot gold was trading at $940.15 per ounce against $945.00 per ounce in late New York trade on Tuesday. Gold on Tuesday rose by more than $15, at one point touching $945.83, its highest price since mid-April.

U.S. employment figures will also be in focus on Thursday, with the release of non-farm payrolls at 1:30 p.m. BST. A large slump in U.S. employment could signal a deepening economic slowdown, providing support for gold which serves as a store of wealth during times of economic turmoil.

Among other precious metals, platinum was down at $2,050 per ounce from $2,076 per ounce, while sister metal palladium slipped to $462 per ounce from $466.25 per ounce. Silver dipped to $18.28 per ounce from $18.31 per ounce.