Gold hit a two-week high on Thursday after the US Federal Reserve's decision to keep interest rates on hold sent the dollar to its lowest level since the start of last week. Bullion gained on Wednesday after the Fed stayed pat on rates but indications it could still tighten monetary policy in the world's biggest economy by the end of the year weighed on gold prices initially on Thursday.
Gold is highly exposed to monetary policy, particularly in the United States, as higher interest rates lift the opportunity cost of holding non-yielding assets and boost the dollar, in which the precious metal is priced. Spot gold rose 0.2 percent at $1,339.46 an ounce by 1400 GMT, close to levels last seen on September 8. The dollar index, which measures the greenback against a basket of currencies, slipped to its lowest since September 12.
US gold futures rose 0.5 percent to $1,337.50 an ounce. "This is a follow on from what happened yesterday with the Fed being more dovish, the market is now going through the upside in gold prices," said ABN Amro commodity strategist Georgette Boele, adding that gains may be capped around $1,350.
Markets will be closely analysing upcoming US data such as gross domestic product figures, non-farm payrolls and inflation for clues as to the timing of any rate rise. "The Fed have signalled that if everything stays the way it is then December is more than likely the next rate rise and this will keep a lid on any rally," David Govett, head of precious metals at Marex Spectron, said in a note. "However, gold's good recovery once again from the support area will discourage any aggressive selling," he said, adding it would trade between $1,310-$1,350 in the absence of news.
Other asset classes such as shares and bonds added to gains in the previous session as the dollar softened. Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.60 percent to 944.39 tonnes on Wednesday. Among other precious metals, silver rose 1 percent to a two-week high of $20.02 ounce. Platinum rose 1.2 percent to $1,062.90 per ounce and palladium climbed 2.5 percent to $700.10, both two-week highs.