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Gold hits two-week high as dovish Fed weighs on dollar

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Gold rose to its highest in nearly two weeks on Thursday after the U.S. Federal Reserve signalled a slower pace of interest rate hike and gave a cautious outlook for the U.S. economy.

[SINGAPORE] Gold rose to its highest in nearly two weeks on Thursday after the U.S. Federal Reserve signalled a slower pace of interest rate hike and gave a cautious outlook for the U.S. economy.

The Fed's dovish stance sent the dollar lower although the greenback clawed back some lost ground in afternoon trading in Asia.

Spot gold was little-changed at US$1,167.40 an ounce by 0804 GMT, after earlier climbing to US$1,177.46, its highest since March 9.

The metal gained 1.6 per cent on Wednesday, its biggest one-day jump since Jan. 30.

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The Fed moved a step closer to hiking rates for the first time since 2006, but downgraded its economic growth and inflation projections, signalling it is in no rush to push borrowing costs to more normal levels.

The US central bank removed a reference to being "patient"on rates from its policy statement, while sounding a cautious note on the health of the economic recovery. It also slashed its median estimate for the federal funds rate and expressed concern over the strength in the dollar.

"The (Fed's) statement and press conference suggest that monetary policy is likely to be tightened but at a more moderate pace than the FOMC initially anticipated," ANZ said in a note, referring to the Federal Open Market Committee.

Gold fell to a four-month low earlier this week as concerns mounted over higher US interest rates which could dent demand for non-interest bearing bullion.

The dollar has risen nearly 10 per cent this year against a basket of major currencies as strong US economic data boosted expectations the Fed would soon start raising interest rates.

Immediate resistance level for gold sits around US$1,180-US$1,185, said MKS Group trader James Gardiner, who sees decent offers leading up to US$1,200.

Others noted that bullion could see further gains on a short-covering rally.

The Fed's caution on rates brought some bullion investors back on board.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.24 per cent to 749.77 tonnes on Wednesday - the first inflow since Feb 20.

The fund had seen some heavy outflows recently that took holdings to their lowest in over a month just earlier this week.

REUTERS

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