Gold hits 2-month high, inflation concerns resurface

By Jan Harvey

LONDON (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 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 2:48 p.m., 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 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.