New York — Gold hit a record high for a second straight day Wednesday, moving within striking distance of $1,100 (U.S.) an ounce as the U.S. dollar dropped broadly after the Federal Reserve said it intended to keep interest rates low for some time.
The dollar weakness against the euro and a basket of major currencies added to momentum triggered by India's purchase of 200 tonnes of gold from the International Monetary Fund.
“The Fed is still looking at the low rates for an extended period of time. The easy monetary policy is here to stay for a little longer. The conditions remain in place for gold to continue to move higher,” said Tom Hartmann, broker at California-based Altavest.
The Federal Reserve on Wednesday expressed growing confidence that a U.S. economic recovery was building, and it committed to keep borrowing costs near zero. It also left benchmark rates unchanged in a range of zero to 0.25 per cent.
“The Fed's reasoning for feeling comfortable with keeping rates low is that it doesn't see inflation fundamentals in the market. That may be true in the classic sense of inflation, but if we look at how the falling dollar is affecting commodity prices, that is inflation,” Mr. Hartmann said.
Spot gold struck a high of $1,097.25 an ounce after the Fed statement, and was last at $1,096.45 an ounce at 3:25 p.m. ET against $1,084.50 late in New York on Tuesday.
Traders also cited strong sentiment after the IMF said earlier this week that it had sold 200 tonnes of gold to the Reserve Bank of India, half of a long-planned bullion sale that had threatened to slow gold's ascent.
“India has [prompted] new speculation of pent-up demand for gold diversification by central banks,” said Michael Lewis, head of commodities research at Deutsche Bank.
Weakness in the dollar has added to this momentum, dealers said. The dollar index fell in choppy trade against the euro after the Fed statement.
Gold typically moves in the opposite direction of the dollar. Strength in the U.S. unit makes gold, like all dollar-priced commodities, more expensive for holders of other currencies and cuts its appeal as an alternative asset.
Spot gold prices also rose to an eight-month peak in euro terms at €741.77 ($1,103.22), and hit their highest since early June when denominated in Australian dollars, at $1,206.74 ($1,097.26).
Before the Fed's interest rate decision, U.S. December gold futures settled up $2.40 at $1,087.30 an ounce on the Comex division of the New York Mercantile Exchange.
Demand for physical gold showed some signs of life, with holdings of the largest bullion exchange-traded fund, New York's SPDR Gold Trust, rising nearly five tonnes.
As gold prices reached record highs on Wednesday, long-time technical analyst Robert Prechter said the rally is overdone. Mr. Prechter is known for predicting the 1987 stock market crash.
Among other precious metals, spot silver rose to $17.46, tracking gains in gold, against $17.20. Platinum was at $1,367 an ounce against $1,355.50.
Palladium rose to $327 after stronger-than-expected U.S. car sales numbers late on Tuesday, against $324.50 late in the previous session in New York.