Gold holds overnight gains after Fed keeps rates steady

By Vijaykumar Vedala and Sethuraman N R

BENGALURU (Reuters) - Gold edged up on Thursday, clinging to gains from the previous session when it rose 1.5 percent to a two-week high, on a weaker dollar after the U.S. Federal Reserve left interest rates unchanged.

The Federal Reserve said near-term risks to the U.S. economic outlook had diminished, potentially leading to a resumption of monetary policy tightening this year. However, the Fed gave no indication whether it would raise rates at its next meeting in September.

Spot gold inched up 0.2 percent to $1,341.60 an ounce at 0715 GMT. Bullion on Wednesday touched a high of $1,342.18, its best since July 14.

U.S. gold rose 1.1 percent to $1,341.40 an ounce.

Gold prices may surpass the more-than-two-year high hit earlier this month and might test $1,400 levels, said V Hareesh, Research Head, Geojit BNP Paribas.

"Gold will come down only after Fed raises the rates. Otherwise, prices will continue to rise," he added.

Gold is 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.

"Moving forward, we don't see much changes in sentiment of what the Fed will do. They are unlikely to raise rates in September with the U.S. Presidential elections due later this year," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.

Spot gold may end its current bounce around a resistance at $1,346 per ounce, as suggested by its wave pattern and a Fibonacci retracement analysis, Reuters technical analyst Wang Tao said.

The dollar index, which tracks the greenback against a basket of six major rivals, fell 0.4 percent to 96.637. Earlier this week, it had risen as high as 97.569, its highest level since March.

In the wider markets, Asian stocks edged up on Thursday after the Fed provided an positive assessment of the U.S. economy and lifted risk sentiment.

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

Among other precious metals, palladium rose to a session high of $708 an ounce, its best since October.

Palladium has soared 18 percent so far in July, its best monthly performance in a near 8-1/2 years, as it catches up on gains made by other precious metals in the wake of the Brexit vote and benefits from greater demand for cyclical assets.

Platinum hit a fresh 14-month high on Thursday and gained 1.7 percent at $1,151.80 an ounce.

Silver climbed 0.3 percent to $20.40 per ounce.

(Reporting By Nallur Sethuraman and Vijaykumar Vedala in Bengaluru; Editing by Christian Schmollinger and Sherry Jacob-Phillips)