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Gold rises after the Fed policy statement

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Gold rose on Wednesday after the Federal Reserve held the line on interest rates and substantially scaled back its expectations for further moves ahead.

Spot gold was up 2.5 percent at $1,262.33 an ounce, while U.S. gold futures for April delivery settled at $1,229.80 an ounce.

Gold is highly sensitive to the prospect of rising rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

"What we are focused on right now is the feared trajectory of the dollar, which looks very bullish," Ava Trade analyst Naeem Aslam said. "This is not such good news for gold."

Fed policymakers were expected to leave short-term interest rates unchanged but also to signal that a rate hike is not too far off as long as the job market and inflation continue to improve.

Where the U.S. central bank at its December meeting had projected four rate hikes in 2016, new estimates released Wednesday reduced that number to two. Fed officials also cut their expectations for economic growth and inflation.

In addition to the two rate increases this year, the Federal Open Market Committee now projects just two hikes in 2017, according to the latest Summary of Economic Projections.

Axel Merk, president and chief investment officer at Merk Investments, which runs the Van Eck Merk Gold Trust (OUNZ) ETF, said the reaction from investors immediately after a Fed statement is not how a trade will ultimately play out, so he takes the immediate reaction with a grain of salt. "You can interpret it any way you want," Merk said. He still believes the stock market is due for a dip and if that occurs gold is supported as a risk diversifier. "We've had a rally now for weeks and the Fed wants what they say to have the least amount of damage," Merk said.

In Merk's opinion, the key in these statements doesn't change for gold, and it's that while growth and inflation are expected to go closer to what is historically normal, rates will remain below normal, even if rising. "I don't think the Fed can hike real interest rates. It's all just a show," he said.aid.

— CNBC's Eric Rosenbaum and Jeff Cox contributed to this report.