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PRECIOUS-Gold extends gains after Fed holds interest rates steady

Published 28/07/2016, 04:58 am
© Reuters.  PRECIOUS-Gold extends gains after Fed holds interest rates steady
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* Federal Open Market Committee leaves rates unchanged

* Dollar gives up earlier gains after Fed statement

* Platinum, palladium rally to 2015 highs (Recasts; updates prices, adds comment, byline, NEW YORK dateline)

By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON, July 27 (Reuters) - Gold extended its climb above $1,330 an ounce on Wednesday after the U.S. Federal Reserve left interest rates unchanged as expected and the dollar pared gains against a basket of major currencies.

The U.S. central bank said in a statement following its two-day meeting that near-term risks to the U.S. economic outlook had diminished, opening the door to a resumption of monetary policy tightening this year. gold XAU= was up 0.9 percent at $1,331.20 an ounce by 2:42 p.m. EDT (1842 GMT). U.S. gold futures GCv1 for August delivery settled up 0.45 percent at $1,326.70.

"Gold has defied the marginally hawkish tone of the FOMC statement turning higher and pushing for a close above $1,335, which could prophesy the return of bullish sentiment," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

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

The dollar, which was buoyed earlier by reports of a larger than previously expected fiscal stimulus plan for Japan that knocked the yen lower, gave back its gains against a basket of currencies .DXY .

"Our economists are expecting a rate hike in December, but if the Fed starts to sound hawkish now, that could weigh on gold," UBS analyst Joni Teves said before the statement was released. "There are downside risks here."

Uncertainty over the path of U.S. rates has eroded nearly 50 percent of the gains gold has made since UK voters shocked global markets last month by voting to leave the European Union.

"Gold's insurance benefits come at a price on these levels," Julius Baer said in a research note. "While Brexit-related uncertainty should be supportive for prices in the short term, the market appears too complacent with U.S. monetary policy."

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares GLD have seen an outflow of nearly 28 tonnes in the last three weeks. GOL/ETF

Among other precious metals, spot platinum XPT= surged as much as 3.1 percent to $1,125.80 per ounce, the highest in nearly 14 months, extending gains after the Fed statement.

Palladium XPD= has risen every day this week, following five straight weeks of gains. On Wednesday, it climbed to a 9-1/2-month high, firming by as much as 2.3 percent to $702.50 an ounce.

Silver XAG= was up 2.43 percent at $20.10 an ounce.

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