Gold turned positive and rose to a 12-week high on Wednesday, after the US Federal Reserve said it was “closely monitoring” global economic and financial developments, and held interest rates steady as expected.
The central bank removed a previous reference from its statement to the risks of the economic outlook being balanced and said it was weighing how the global economy and financial markets could affect the outlook.
“Gold has risen to highs of this rally as the FOMC provided a perfunctory yet cordial nod to doves by removing ‘risks are balanced’ and acknowledging market conditions,” said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
“For gold bulls, it is an invitation to push gold higher before the next major hurdle which is the February employment report.”
Spot gold was up 0.6 percent at $1,126.70 an ounce at 2:55 p.m. EST (1955 GMT), the highest since Nov. 3, after trading down 0.5 prior to the Fed statement.
U.S. gold for February delivery settled down 0.4 percent at $1,115.80 per ounce, before the Fed statement.
Ahead of the Fed’s decision to keep rates unchanged for the time being, investors were betting on one quarter-point rate increase in 2016 rather than the four that Fed policymakers signaled in their December economic forecasts.
“A potential further decline in equities and market uncertainty about global growth is a good environment for gold because investors want something defensive,” ETF Securities analyst Martin Arnold said, prior to the statement.
After a 10% drop in 2015, its third year of losses, gold has so far benefited from turmoil in equity markets and worries about an economic slowdown in China, which contributed to lift prices by 6% this month.
Wall Street stocks turned lower and the dollar’s losses deepened against a basket of currencies.
A weaker dollar makes gold cheaper for holders of other currencies.
Reflecting rising confidence in gold, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, stood at 21.52 million ounces on Tuesday, the highest since Nov 5.
Looking at demand in Asia, Helen Lau, analyst at Argonaut Securities, expects China’s gold imports to remain strong due to a seasonal demand surge ahead of the Lunar New Year holiday in February.
Spot silver turned up 0.3% to US$14.54 an ounce, platinum rose 0.3% to U$$877.24 and palladium was up 1.5% at US$499.55.