Bengaluru: Gold climbed to a three-week peak on Thursday as the US Federal Reserve ruled out chances of any interest rate hike this year, while a surprise cut in US growth forecast added to concerns on global economic slowdown.
Palladium hit a record high on prolonged supply deficit in the market.
Spot gold gained 0.5 percent to $1,318.36 per ounce as of 8.04 am GMT, after touching its highest since February 28 at $1,320.22 earlier in the session. US gold futures jumped 1.3 per cent to $1,318.50 an ounce.
Having downgraded the US growth, unemployment and inflation forecasts, the Federal Reserve brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year.
“The Fed was even more dovish than expected and that added to concerns that US growth, and therefore global growth, is hitting a patch of weakness,” said Kyle Rodda, a market analyst with IG Markets in Melbourne.
“US dollar is well off its highs from yesterday and the Treasury yields are coming down which means going into bonds or assets of that nature yields less and gold becomes more attractive.”
The dollar fell sharply and US Treasuries rallied after Fed’s decision on Wednesday, taking the benchmark 10-year yield to a 14-month low.
Gold, which pays no interest of its own, is often used as a hedge against political and financial risks.
Bullion bids should remain keenly sought, with increased prospects of a hard Brexit, OANDA wrote in a note.
In predicting no rate increases for 2019, the Fed's policymakers reduced their forecast from two that were previously predicted in December. They now project one rate hike in 2020 and none in 2021. The Fed had raised rates four times last year and a total of nine times since 2015.
The central bank's theme, in its statement and in a news conference by Fed chairman Jerome Powell, is that it will remain continually “patient” about pursuing any further rate hikes. In his news conference, Mr Powell used some version of the word “patient” no fewer than 10 times.
Stock market indexes initially rallied on the news, but the gains soon faded and many stocks finished the day down. The Dow Jones Industrial Average lost 141 points, or 0.5 per cent. Analysts said the Fed's downgraded outlook for the economy might have alarmed investors.
“We think the Fed's forecasts are still too upbeat,” said Michael Pearce, senior U.S. economist at Capital Economics, saying he thinks sluggish growth will lead the Fed to start cutting rates early next year.
The Fed's decision was approved on an 11-0 vote.
Stock prices have been generally surging since early January, when Powell abruptly reversed course and made clear that the Fed was in no hurry to raise rates and would likely slow the runoff from its balance sheet. And while stocks struggled on Wednesday, the Fed's plans for no credit tightening this year sent Treasury yields tumbling, with the 10-year yield hitting its lowest level in more than a year.
