PRECIOUS-Gold gains on softer U.S. bond yields, ECB keeps policy unchanged

(Recasts, adds comment, updates prices)

* Focus also on Q3 U.S. GDP

By Arundhati Sarkar

Oct 28 (Reuters) - Gold prices rose on Thursday, drawing support from softer U.S. bond yields and the European Central Bank's decision to keep policy unchanged as expected, which allayed investor fears of an imminent interest rate hike.

Spot gold was up 0.3% to $1,802.60 per ounce at 1238 GMT. U.S. gold futures gained 0.5% to $1,806.90.

The ECB left policy unchanged, holding fire before a set of crucial decisions in December on ending pandemic emergency stimulus and returning policy to a more normal setting.

"ECB's actions will keep Eurozone bond yields under pressure because they'll be buying bonds" and that should reduce the opportunity cost of holding gold, said Fawad Razaqzada, analyst with ThinkMarkets, adding that, even though the decision was mostly expected, it should be supportive for the metal.

Earlier in the day, the Bank of Japan also retained its easy monetary policy settings.

It seems major central banks are not likely to tighten monetary policy too aggressively even if inflation remains elevated, Razaqzada added.

Also helping gold, benchmark 10-year U.S. Treasury yields held close to a two-week low.

Gold is traditionally seen as an inflation hedge. However, reduced stimulus and interest rate hikes would push government bond yields up, translating into a higher opportunity cost for holding gold, which pays no interest.

Analysts also said the U.S. Federal Reserve's meeting on Nov. 2-3 would be more crucial for gold after chief Jerome Powell's recent comments on tapering asset purchases.

"Fed tapering should already be well and truly discounted, although there is bound to be a short-lived knee-jerk reaction to the Fed's statement next Wednesday - there always is!" StoneX analyst Rhona O'Connell said.

Spot silver rose 0.1% to $24.06 per ounce, platinum gained 0.4% to $1,014.45, and palladium climbed 1.7% to $1,997.52. (Reporting by Arundhati Sarkar; Editing by Krishna Chandra Eluri and Mark Potter)

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