By Apeksha Nair
(Reuters) - Gold prices inched up on Thursday, after hitting a two-and-a-half-week low in the previous session, as the dollar eased ahead of a key European Central Bank meeting later in the day.
The ECB is all but certain to cut back on its bond-buying stimulus, taking its biggest step yet in unwinding years of loose monetary policy.
However, as low inflation remains a primary concern for the bank, any reduction in monthly asset purchases would be expected to come with an extension of the programme.
"We suspect that the central bank could come across as somewhat more hawkish than what the market is currently expecting," INTL FCStone analyst Edward Meir said in a note.
"As a result, we could see the euro strengthen post-policy statement, which would be short-term constructive for gold."
The euro inched up 0.1 percent to $1.1819, while the dollar eased 0.1 percent to 113.60 yen.
A stronger euro against the dollar could favour gold as it would make the greenback-denominated metal cheaper for holders of other currencies.
Spot gold was up 0.2 percent at $1,279.96 an ounce by 0353 GMT. It hit its lowest since Oct. 6 at $1,270.63 an ounce in the previous session.
U.S. gold futures for December delivery rose 0.2 percent to $1,281.20 an ounce.
"Gold has been spurred higher as U.S. yields fell overnight and the dollar weakened ahead of this afternoon ECB meeting where the beginning of tapering is expected to be announced," said Jeffrey Halley, a senior market analyst with OANDA.
The dollar's losses were seen limited, as the U.S. currency was broadly drawing support from strong Treasury yields, progress in tax reforms and speculation that next Federal Reserve chair could be a policy hawk.
President Donald Trump had on Tuesday polled the Republicans on whether they would prefer Stanford University economist John Taylor or current Fed Governor Jerome Powell for the job, and more senators preferred Taylor.
"A hawkish governor like Taylor could lead to a rise in bond yields and be negative for the gold price," said John Sharma, an economist with National Australia Bank.
Spot gold may edge up to a resistance at $1,283 per ounce, a break above which could lead to a gain to $1,289, Reuters technicals analyst Wang Tao said.
In other precious metals, silver rose 0.5 percent to $17 an ounce, while platinum and palladium were both 0.6 percent higher at $925.70 an ounce and $966 an ounce, respectively.
(Reporting by Apeksha Nair in Bengaluru; Editing by Joseph Radford and Subhranshu Sahu)