Fed rate pause keeps gold near eight-month highs; eyes fourth monthly gain

By Sethuraman N R

(Reuters) - Gold prices on Thursday held near eight-month highs hit in the previous session, as the dollar weakened after the U.S. Federal Reserve paused its monetary tightening cycle, putting bullion on course for its fourth straight monthly gain.

Spot gold was up 0.1 percent at $1,320.65 per ounce by 0536 GMT. Prices rose to their highest since May 11 at $1,323.34 on Wednesday. U.S. gold futures were up 0.8 percent at $1,319.70 per ounce.

Spot gold has risen 3 percent so far this month.

The Fed held U.S. interest rates steady on Wednesday but said it would be patient in lifting borrowing costs further this year as it pointed to rising uncertainty about the economic outlook.

"The Fed dropped a commitment to gradual rate hikes from its policy statement ... U.S dollar's plunge alongside treasury bond yields have burnished the relative appeal of gold," said Ilya Spivak, senior currency strategist with DailyFx.

The dollar index, which measures the greenback against a basket of currencies, fell after the Fed's cautious statement.

Gold tends to rise on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.

Meanwhile, attention turned towards the U.S. and China high-level trade talks that began on Wednesday, aimed at digging out from their months-long trade war.

Investors are worried that Washington's criminal charges against Chinese company Huawei and its chief financial officer could hurt the talks.

If the two sides cannot reach a deal soon, Washington has threatened to more than double tariffs on Chinese goods on March 2.

"Gold is getting a double whammy from a dovish Fed and U.S.-China trade talks," said Jeffrey Halley, senior market analyst, OANDA, adding that prices will firm around $1,300 levels.

"But, $1,350 is going to be tough to crack and one needs more risks in the market to push gold higher."

Asia stocks rose to a four-month high on Thursday, as Fed decision improved risk appetite.

Spot gold has gained nearly 14 percent since hitting more than 1-1/2-year lows in August, mostly due to tumultuous stock markets and on expectations that the Fed could pause its multi-year-rate hike cycle.

Underscoring investor interest in gold, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, were at their highest since June.

SPDR gold holdings have climbed 4.6 percent so far this month, the biggest monthly gain since September 2017.

Palladium was steady at $1,361, after touching a record high at $1,434.50 on Jan. 17.

"Speculative positioning (in palladium) is now likely extremely elevated on the long side, suggesting periodic sell-offs on profit-taking are more likely," Societe Generale said in a note.

Silver stood firm at $16.05 per ounce, after touching $16.10 in prior session, its highest since July 2018.

Platinum was down 0.3 percent at $812.50.

(Reporting by Nallur Sethuraman and Karthika Suresh Namboothiri in Bengaluru; Editing by Shreejay Sinha and Rashmi Aich)