Gold at near two-week high as dollar tumbles

Gold extended gains on Thursday to its highest level in nearly two weeks as the dollar tumbled after the Federal Reserve signalled a slower pace of US interest rate hike and caution on US economic growth.

FUNDAMENTALS

Spot gold gained 0.6 percent to USD 1,174.26 an ounce by 0041 GMT, after earlier climbing to USD 1,175.05, its highest since March 9. The metal gained 1.6 percent on Wednesday, its biggest one-day jump since Jan. 30.

The Fed on Wednesday moved a step closer to hiking rates for the first time since 2006, but downgraded its economic growth and inflation projections, signalling it is in no rush to push borrowing costs to more normal levels.

The US central bank removed a reference to being "patient" on rates from its policy statement, opening the door wider for a hike in the next couple of months while sounding a cautious note on the health of the economic recovery. It also slashed its median estimate for the federal funds rate.

Fed Chair Janet Yellen also sounded uncomfortable with the strength of the dollar, saying it would be a "notable drag" on exports and a downward force on inflation.

The dollar has gained nearly 8 percent this year against a basket of major currencies as strong US economic data boosted expectations the Fed would soon start raising interest rates. Diverging global monetary policies have also helped.

Gold, on the other hand, fell to a four-month low earlier this week as fears mounted regarding higher interest rates. The Fed's caution brought some bullion investors back on board.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.24 percent to 749.77 tonnes on Wednesday - the first inflow since Feb. 20.

In other industry news, a handful of banks will start setting gold prices electronically on Friday, sources with direct knowledge of the matter said, as Intercontinental Exchange completes a sweeping change to London's bullion benchmarks and dispenses with the century-old gold "fix".

The Dubai Gold and Commodities Exchange is in an advanced stage of talks with a local bank on its plans to launch a spot gold contract, a senior executive at the exchange said.

Seizures of gold smuggled into India have surged, data showed on Wednesday, as the government tries to crack down on a thriving illegal trade made profitable by high import duty and other restrictions.

MARKET NEWS

The dollar nursed punishing losses in Asia on Thursday after investors priced in a later start and a slower pace for future US rate rises, slashing Treasury yields and firing up Wall Street stocks.