Gold settled at a two month high on Thursday as a drop in the dollar and a lack of commitment by the U.S. Federal Reserve to raise interest rates sent metal investors rushing to buy back their bearish bets.
The rally in bullion marked its biggest one-day gain in eight months. Silver jumped as much as 5 percent, while platinum and palladium also climbed as new hurdles emerged to settling South Africa's mining strike.
Gold was boosted by the U.S. dollar index's tumble a day after the Fed signaled it will stick with a near-zero interest rate policy to support the economy, disappointing traders who had bet on hints of policy tightening.
Chart: Precious Metals
Analysts said that market participants in droves aggressively bought back short positions that were placed earlier in the week on expectations that a stronger U.S. economy would dampen bullion demand.
"Much of what happened today is a short squeeze. I don't think this is a huge rush of new buyers into gold," said Axel Merk, chief investment officer at Merk Funds, which manages about $400 million of currency mutual-fund assets.
for August delivery settled $41.40 higher at $1,314.10 an ounce, its highest closing price since April 14.
Spot gold rose 3 percent to $1,315.49 an ounce—its highest level since May 5—before easing to $1,314 an ounce, up 2.9 percent in the day.
Technical buying also helped lift prices on Thursday as the rally sent gold above tough resistance at $1,285, near a key Fibonacci retracement as well as its 50- and 100-day moving averages, analysts said.
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Gold extended the previous session's gain as the Fed said in a statement after a two-day policy meeting that it had cut its U.S. growth forecast for 2014 to a range of between 2.1 percent and 2.3 percent from 2.9 percent.
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—By Reuters. CNBC contributed to this report.