Gold prices rose back above $1,600 an ounce in Europe on Thursday as a retreat in the dollar helped the metal recover some of previous day's decline, but moves were muted ahead of a monetary policy statement from the European Central Bank.

Spot gold was up 0.4 percent at $1,604.11 an ounce at 0943 GMT, while U.S. gold futures for August delivery were up 10 cents an ounce at $1,607.40.

Prices fell 0.9 percent on Wednesday, their biggest one-day drop in more than three weeks, after the Federal Reserve made no mention of more monetary stimulus measures like quantitative easing after a two-day meeting in Washington.

The metal clawed back some lost ground early on Thursday as the dollar retreated ahead of the ECB policy announcement later in the session, however.

The bank's chief Mario Draghi boosted hopes for fresh action to help the euro last week when he said he would do whatever necessary to protect the single currency.

That helped gold prices rally to $1,629.10 an ounce, their highest since mid-June. If he does not announce decisive action, the euro and gold could quickly lose ground, analysts said.

"It is our view that the expectations of market participants are almost at too high with regard to ECB bazooka action," LGT Capital Management analyst Bayram Dincer said. "We regard the risk of downside potential for real asset prices as very high if ECB QE actions are only of the mildest form."

Prices could fall as low as $1,560 an ounce, he said.

The euro hit a session high against the dollar as investors positioned for the possibility of strong action by the ECB later, and after a Spanish bond sale drew decent demand. European shares firmed a touch.  .EU

"If the ECB doesn't do something today, there will be disappointment," Mitsubishi analyst Matthew Turner said. "But they will have to do something at some point. The situation is dynamic and will force them to do something."

"So even if it disappoints, that doesn't mean there will not be some kind of easing at some point soon. So I think probably we would still hold the levels that we held in June, July, which was around $1,550."


South Korea said late on Tuesday that it bought 16 metric tons (17.6 tons) of gold in July, its second purchase this year. It is one of a number of countries, mostly in Asia and emerging markets, to have built reserves recently.

"Central bank activity is in part filling in for the tame retail physical buying from the likes of India of late by helping gold on the downside and inserting a price floor," UBS said in a note.

"In turn this has been providing investors with some comfort, that stronger hands are active sub $1,600, but importantly that their comfortable price entry is rising."

Among other precious metals, silver was up 0.4 percent at $27.50 an ounce, while spot platinum was down 1 percent at $1,395.49 an ounce and spot palladium was down 1.1 percent at $580.25 an ounce.

Platinum prices are still languishing near this year's lows, as expectations that demand will remain weak among European carmakers, key consumers of the autocatalyst metal, remained downbeat.

The metal has failed to respond this year to threats to supply from major producer South Africa.

Aquarius Platinum (AQPJ.J)(AQP.L) has reopened the Kwezi shaft at its Kroondal mine in South Africa, where operations were suspended after a deadly attack at the site that left three dead and at least 20 injured, a spokeswoman said on Thursday.

The company said on Wednesday about 200 people, some of them armed, forced their way onto mine property. They are believed to be former employees of a mining contractor, who were dismissed following an illegal strike in June, it said.