Futures & Commodities

Gold holds gains after Fed says it will leave rates unchanged

Key Points
  • Fed keeps interest rates unchanged at 1-1.25 percent.
  • Palladium hits over two-week high.
  • Gold's move higher accelerates on break of 100-day moving average.

Gold advanced on Wednesday as traders repositioned themselves after the Federal Reserve said it will keep target interest rates unchanged for the time being.

Prices held onto earlier gains after statements from the U.S. central bank indicating that while it would leave rates unchanged, it was on track to lift borrowing costs again in December.

The Fed will leave rates unchanged at 1-1.25 percent. Gold is highly sensitive to rising U.S. interest rates, as these lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Spot gold was 0.33 percent higher at $1,275.37 an ounce by 3:51 p.m. EDT, having earlier peaked at $1,280.87. Its upward move accelerated after it broke through its 100-day moving average at $1,275 an ounce, a key chart level.

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U.S. gold futures for December delivery settled up $6.80, or 0.5 percent, at $1,277.30 per ounce.

"The price action in gold was most likely positioning reversals. We saw some shorts cover and then the market came back," said Daniel Ghali, commodities strategist for TD Securities in Toronto.

The latest Fed statement came a day ahead of confirmation of a new chair, likely replacing incumbent Janet Yellen. Fed Governor Jerome Powell is widely seen as the favorite to take over next year. He is considered less hawkish and therefore more bullish for gold than his main challenger.

Gold prices have recovered from Friday's three-week low, but they remain within a less than $15 an ounce range.

"Coming closer to the end of the year and two FOMC meetings in a month and half, which could determine the direction of monetary policy, is what has been keeping gold rangebound," Capital Economics analyst Simona Gambarini said.

Wall Street held onto modest gains on Wednesday, while the dollar recovered against a basket of major currencies. Oil prices retreated.

Traders also awaited U.S. President Donald Trump's tax plan, which Republicans plan to release Thursday morning.

Elsewhere, silver rose 2.7 percent to $17.148, after reaching $17.195, the strongest since Oct. 20, while platinum climbed 2.06 percent to $934.10 an ounce after touching $937.30, the highest since Oct. 16.

Palladium surged 2.2 percent at $1,001.75 an ounce, the strongest since Oct. 16.

The metal rose nearly 5 percent in October and touched a 16-year peak of $1,010.50 an ounce mid-month.