Gold hits 3-week high as Fed defers rate hikes

Gold climbed to a three-week peak on Thursday as the U.S. Federal Reserve ruled out chances of any interest rate hike this year, while a surprise cut in U.S. growth forecast added to concerns on global economic slowdown.

Palladium hit a record high on prolonged supply deficit in the market.

Spot gold gained 0.5 percent to $1,318.36 per ounce, after touching its highest since Feb. 28 at $1,320.22 earlier in the session.  U.S. gold futures jumped 1.3 percent to $1,318.50 an ounce.

Having downgraded the US growth, unemployment and inflation forecasts, the Fed brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year.

"The Fed was even more dovish than expected and that added to concerns that US growth, and therefore global growth, is hitting a patch of weakness," said Kyle Rodda, a market analyst with IG Markets in Melbourne.

"US dollar is well off its highs from yesterday and the Treasury yields are coming down which means going into bonds or assets of that nature yields less and gold becomes more attractive," Rodda added.

The dollar fell sharply and US Treasuries rallied after Fed's decision on Wednesday, taking the benchmark 10-year yield to a 14-month low.

Gold, which pays no interest of its own, is often used as a hedge against political and financial risks.

Among other precious metals, spot palladium rose 0.1 percent to $1,605.10 per ounce, after touching an all-time high of $1,620.53 earlier in the session.

"Prices rose because of continued tightness in the market and lack of liquidity," said Cameron Alexander, an analyst with Refinitiv-owned metals consultancy GFMS. "Concerns related to supply risks have ratcheted up a little bit more and that is giving a lift to prices."