Gold at 1-1/2-week high after Fed holds rates steady

[NEW YORK] Gold prices rose to 1-1/2-week highs on Wednesday, extending gains after the US Federal Reserve held interest rates unchanged but sent a strong signal for monetary policy tightening before the end of 2016.

"The case for an increase in the federal funds rate has strengthened," the US central bank said in a statement following a two-day policy meeting.

Spot gold was up 1.2 per cent at US$1,330.08 an ounce by 2:58pm EDT (1858 GMT), after rising to US$1,335.01 an ounce, the highest since Sept 9.

US gold futures settled up 1 per cent at US$1,331.40 prior to the release of the Fed statement.

"Gold rallies the most in two weeks as a timorous majority managed to impose its will over three dissenters," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

"Gold is being bought as the market considers that the Fed now has three months to find an excuse to skip even a December hike and a realisation 2017's voting Fed Presidents are much more dovish than the current group."

Three of the policy makers dissented on the policy statement, saying they favoured raising rates this week.

"Overall, while the statement and dissents were more hawkish than expected, the dovishness contained in the SEP (Summary of Economic Projections) appear to be driving markets," said Royce Mendes, director and senior economist at CIBC Capital Markets in Toronto, adding that the bank expects a rate hike in December.

The US dollar index fell around 0.3 per cent against a basket of major currencies.

Gold was already firm in earlier trade, along with stock markets, after the Bank of Japan overhauled its monetary policy framework, switching to targeting interest rates and side lining more than three years of massive money printing.

"It provided a bit of a lift to gold as well as well as other assets, but certainly we are going to be more or less on hold until we see the Fed statement later," analyst Tom Kendall at ICBC Standard Bank in London said.

In other precious metals, spot silver gained 2.4 per cent at US$19.72 an ounce.

Platinum climbed 2.3 per cent at US$1,049.20 and palladium rose 0.2 per cent at US$682.50.

Macquarie does not expect any significant rally in platinum until 2018 or 2019, the bank said in a note.

"The price will remain far lower than it has been in the past, a legacy of declining diesel (vehicles) and the prospect of EVs (electric vehicles), though platinum's relatively broad range of uses will help cushion the blow."

REUTERS