Gold prices firm after Fed decides to taper without rate hikes

Gold prices inched higher on Thursday, after hitting a three-week low in the previous session, as investors took solace in the U.S. Federal Reserve's plan to start tapering its stimulus without hiking rates for the time being.

Spot gold XAU= rose 0.4% to $1,776.99 per ounce by 0847 GMT, after touching its lowest since Oct. 13 on Wednesday. U.S. gold futures GCv1 gained 0.7% to $1,775.60.

In a widely expected move, the Fed said it would start trimming its monthly asset purchases in November with plans to end them by mid-2022.

The central bank signalled it would stay patient before raising interest rates as it held onto its belief that inflation would be "transitory" and awaited more signs of job growth.

"Given the Fed's view that inflation could persist until about mid-2022 and some signs from the labour market of full employment as evidenced by wage growth, it's not going to take much for the Fed to accelerate tapering, weighing on gold," said Stephen Innes, managing partner at SPI Asset Management.

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of gold, which pays no interest.

Michael Langford, a director at corporate advisory AirGuide expects gold to trade between $1,750 and $1,800 until data such as job reports and wage growth, which are key variables to central banks, are released.

"The gold market is also still going to be supported by robust physical demand, especially in India and China during the festive season," Innes said.

Focus now shifts to Friday's key U.S. nonfarm payrolls report and the Bank of England's policy decision at 1200 GMT on Thursday, where it is expected to hike interest rates.

Spot silver XAG= rose 0.5% to $23.62 per ounce. Platinum XPT= gained 1.6% to $1,045.75 and palladium XPD= climbed 2.4% to $2,048.28.

 

(Reporting by Nakul Iyer in Bengaluru; Editing by Shounak Dasgupta and Ramakrishnan M.)