Gold rose more than 1 percent to a 6-1/2-week high on Thursday as stock markets, commodities and the euro all rallied after the U.S. Federal Reserve extended by 18 months its plan to keep interest rates historically low and hinted at further economic stimulus.
The day after the Fed's announcement, spot gold jumped to its biggest one-day rise in three months, then pulled back from session highs. Fed policymakers said they probably would keep key U.S. interest rate targets near zero until at least 2014. Fed Chairman Ben Bernanke said the central bank was ready to offer additional economic stimulus.
The news cheered gold investors, who have long feared that the precious metal's rally would be stressed by a U.S. rate hike, which would lift both the dollar and the opportunity cost of holding non-interest bearing bullion. "At the moment everything points to even higher prices, given the strong risk appetite, the better mood among market players, the strong equity markets and the weak dollar," said Commerzbank analyst Daniel Briesemann.
He noted the Fed's explicit signals that the option for more government bond purchases, or quantitative easing, is still on the table and that it no longer sees inflation as a major problem. These, he said, are "definitely very good for gold." But he added gold might be vulnerable to profit-taking after a strong rally this month lifted prices by 10 percent.
Spot gold jumped 1.11 percent to a high at $1,729.76 an ounce, but had pulled off that 6-1/2-week peak in a quick round of profit taking by 1:17 p.m. EST (1817 GMT). It was last at $1,726.10, a 0.62 percent increase.
U.S. gold futures for February delivery held onto 1.50 percent gains at $1,724.90, up $24.80 per ounce.
Meanwhile, the euro surged to a five-week high against the dollar, further boosting dollar-denominated gold in overseas markets, after U.S. jobs and manufacturing data fed risk appetite with their suggestions of a strengthening U.S. economy. <USD/> "The strong rally in gold changed what, prior to the (Fed's) 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," he said.
GOLD EXPECTED TO RISE IN 2012
A poll of precious metals price forecasters carried out by Reuters in January showed most expect gold to continue its bull run for a 12th year in 2012 as interest rates stay low and central banks continue buying.
The survey of 45 analysts predicted an average spot gold price of $1,765 an ounce in 2012, 14 percent higher than last year's average of $1,544. However, the rate of its rise is likely to slow, they said. <PREC/POLL> "Coupled with continued central bank appetite for gold, the broader macro backdrop remains conducive for gold price gains, given negative real interest rates, concerns over longer-term inflationary pressures and uncertainty surrounding the financial markets and economic outlook," Barclays Capital analyst Suki Cooper said.
Silver was up 1.1 percent at $33.65 an ounce, having tracked gains in gold up to its highest in nearly eight weeks at $33.78 an ounce. Platinum group metals also pulled off session highs. Spot platinum was up 1.76 percent at $1,606.49 an ounce, while spot palladium edged down to $689.72 an ounce from $690.97 previously.
Miner Lonmin <LMI.L>, 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 <AAL.L>, 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.
Physical gold trade was muted by the closure of markets in China and other key Asian gold-buying centers for the Lunar New Year holiday.