* ECB holds rates, BoE expands quantitative easing
* Gold hits highest level since June but gains short-lived
* Profit taking in platinum group metals
(Updates prices)
By Jan Harvey
LONDON, Aug 6 (Reuters) - Gold hit a two-month high on
Thursday as an expansion of the UK's quantitative easing
programme and the European Central Bank's decision to keep
interest rates at record lows stoked concerns over inflation,
but gains were short-lived as the dollar firmed.
Spot gold <XAU=> hit a high of $971.05 as buying in the wake
of the rates decisions pushed it through technical resistance
around $970 an ounce, and was bid at $965.10 an ounce at 1348
GMT, against $961.95 an ounce late in New York on Wednesday.
The ECB had been widely expected to leave rates unchanged at
1 percent, but news that the Bank of England was to expand its
quantitative easing programme to 175 billion pounds ($297
billion) from 125 billion surprised traders.
"The ECB and BoE actions suggest that central banks have
still got the pedal to the metal, and people are starting to get
worried about the banks having things too loose for too long,"
said Citigroup analyst David Thurtell.
Gold, which is often seen as a key inflation hedge,
initially shrugged off a rise in the dollar, but prices later
slipped from highs as currency pressures came into play. []
Commerzbank analyst Eugen Weinberg said both inflation
worries and technical factors had pushed prices higher.
"For today's rise, I think the proximity to the $1,000 mark
plays a role," he said. "We have broken out of the previous
trading range, and prices have crossed the $960 mark and are
rising towards $980. $980 is the last hurdle before $1,000."
"Should the dollar really rally towards $1.42, $1.43 (versus
the euro) I could imagine gold would suffer," he said.
On the wider markets, European shares rose after the ECB
announcement, while U.S. stocks opened higher after data showed
a sharp fall in the number of U.S. workers filing new claims for
jobless benefits. [] []
OUTPUT RISES
In supply news, Gold Fields <GFIJ.L>, the world's number
four gold producer, said its output of the metal rose 4 percent
in the fourth quarter while production costs fell 6 percent to
$512 an ounce. []
On the demand side, buying of gold to back exchange-traded
funds remains slack, with holdings of the SPDR Gold Trust <GLD>,
the largest bullion ETF, unchanged for a fifth day on Wednesday.
Sales in the world's main gold jewellery market, India, were
also lacklustre as banks were shut by a strike. []
Among other precious metals, silver <XAG=> rose to $14.84 an
ounce against $14.64.
The world's largest silver producer, Fresnillo <FRES.L>,
said its board had approved a pre-feasibility study for the
development of its Saucito project in Mexico, which could
produce up to 9 million ounces of silver a year.
This is equivalent to more than 1.3 percent of annual global
production, which stood at 680.9 million ounces last year.
Platinum <XPT=> was at $1,272.50 an ounce against $1,282.50,
while palladium <XPD=> was at $271.50 against $273.
Traders have taken profits in both metals after they hit
multi-month highs on Wednesday amid talk of a strike at South
African power company Eskom.
The union said on Thursday it will march to press state
utility Eskom for better wages, as the company braced for a
possible strike that could disrupt power in the world's biggest
platinum producer. []
(Additional reporting by Catherine Bosley; Editing by Sue
Thomas)
