Gold prices hit 6-1/2 week highs on Thursday as stock markets, commodities and the euro all rallied after the Federal Reserve said it planned to keep interest rates at rock bottom for some years, and hinted at further economic stimulus measures.
The metal posted its biggest one-day rise in three months on Wednesday after the Fed said it might consider further monetary easing through bond purchases, and also pushed back the likely timing of an eventual interest rate hike to late 2014.
The news cheered gold investors, who have long seen a US rate hike - which would lift both the dollar and the opportunity cost of holding non-interest bearing bullion - as the likely point at which the precious metal's rally would peter out.
“The strong rally in gold changed what prior to the announcement had been a test of gold's resolve,” said Saxo Bank senior manager Ole Hansen.
“The Fed statement changed all that and from thinking that the gold rally potentially only had one year left to run, it could now continue for longer.”
“The 'off' button on the printing press has well and truly been taped over,” he said.
Spot gold was up 0.4 percent at $1,715.29 an ounce at 12:14 SA time, while US gold futures for February delivery were up $16.00 an ounce at $1,716.10. Earlier spot prices hit a peak of $1,717.99 an ounce, their highest since December 9.
The euro rose to a five-week high against the dollar as a dovish stance from the US Federal Reserve supported risk appetite, and on speculation of a breakthrough in Greek debt negotiations.
The top negotiator for private creditors is scheduled to return to Athens later to resume talks with officials on a debt swap deal for Greece.
Equity markets were higher, meanwhile, tracking gains in Asia after the Fed announcement raised hopes the central bank was ready to offer additional stimulus for growth.
“Risk assets such as the euro and equities rallied along with gold,” said HSBC in a note.
“The addition of a new phrase in the statement in which the committee expects to maintain a highly accommodative monetary policy is a clear bias towards monetary easing,” it added. “A highly accommodative monetary policy is bullish for gold.”
TECHNICAL LEVELS BREACHED
Confidence in gold was further lifted by its close above its 100-day moving average, a key technical marker that currently stands at around $1,684, on Wednesday. This marked its first close above that level since early December.
It is now better positioned from a technical perspective, analysts said, though a short-term correction is possible.
“Precious metals have taken off near term, breaking through several important resistance levels,” said Barclays Capital in a note. “We are wary of markets being overstretched though, and look for gold and silver to correct ahead of prior highs.”
Physical gold trade was muted by the closure of markets in China and other key Asian gold-buying centres for the Lunar New Year holiday.
Silver was up 0.5 percent at $33.34 an ounce, having tracked gains in gold up to its highest in nearly eight weeks at $33.57 an ounce.
Spot platinum was up 1.8 percent at $1,606.50 an ounce, while spot palladium was up 0.1 percent at $33.34 an ounce.
Miner Lonmin, the world's third-largest platinum producer, posted a rise in first quarter output despite the impact of safety stoppages, which it warned could hit both sales and costs if current trends persist.
Anglo American, whose Anglo American Platinum unit is the world's biggest miner of the white metal, said its stoppages were more than double those of the fourth quarter of 2010. Refined platinum production was 9 percent lower. - Reuters