Gold jumps to 2-week high as Fed holds US rates steady

[LONDON] Gold rose to a two-week high on Thursday after the Federal Reserve said it held US interest rates steady following a two-day policy meeting, sending the dollar index to a three-week low.

The US central bank's decision was a nod to concerns about a weak world economy, saying that an array of global risks and other factors had convinced it to delay what would have been the first rate hike in nearly a decade. It left open the possibility of a modest policy tightening later this year.

Spot gold was up 0.8 per cent at US$1,127.80 an ounce, after rising to US$1,130.35, the highest since Sept 3. It rose 1.3 per cent on Wednesday in its biggest daily jump since Aug 20, helped by data showing US consumer prices unexpectedly fell in August. "No change in Fed rate target and little indication of a commitment to increasing rates still this year is driving dollar down and providing support to gold," said Rob Haworth, senior investment strategist for US Bank Wealth management. "Fed comments about global market volatility and global economic risks are also supporting, likely, safe-haven flows into gold." Haworth said, however, that the surge is likely short-lived as demand for physical gold appears soft and "ultimately we will be faced with a similar debate as we get to the October meeting." US gold futures for December delivery settled down 0.2 per cent at US$1,117 an ounce, before the Fed statement.

Expectations ahead of the statement were mixed, with a Reuters poll showing 45 out of 80 economists expected the Fed would keep its benchmark interest rate between zero and 0.25 per cent.

Uncertainty over the Fed's decision kept gold in a narrow range early this week, but on Wednesday the metal saw its biggest rally in four weeks after data showing the surprise dip in US inflation last month.

Signs of a disinflationary trend in the United States contrast with a fairly healthy economy and falling unemployment rate, and highlight the dilemma Fed officials face as they contemplate raising rates this year.

Silver was up 1.8 per cent at US$15.16 following a 3.5 per cent jump in the previous session. Platinum was up 0.7 per cent at US$974.74 an ounce and palladium was up 0.1 per cent at US$609.50.

REUTERS