Gold At 6-Month High As Fed Fans Inflation Risk

Cash gold is on course for a 2.1-percent gain this week -- a fourth week of consecutive rises, as investors have been encouraged by central banks' latest push to promote global growth.

Bond-buying, effectively cash printing, raises the inflation outlook and increases gold's appeal as a hedge against rising prices.

"The Fed's move will flood the market with liquidity, which will consequently push up inflation and drive investors to assets known to be good hedges, such as gold and silver," said Li Ning, an analyst at Shanghai CIFCO Futures.

"At least in the short- to medium-term, the Fed's action will provide solid support for gold and help it test $1,800, or even $1,900."

Spot gold climbed as high as $1,774.96 an ounce in early Asian trade, its highest since February 29, and eased slightly to $1,772.99 by 0411 GMT.

The most-active U.S. gold futures contract also hit a near six-month high, at $1,777.5, before edging back to $1,775.70.

Technical analysis echoed the bullish sentiment in the market. Spot gold could rise to $1,785-$1796 range during the day, said Reuters market analyst Wang Tao.

Holdings of SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, inched up 0.2 percent on the day to 1,292.432 tonnes by September 13.

The dollar index dropped to a four-month low, helping attract gold buyers holding other currencies.

SILVER, PLATINUM, PALLADIUM HIT MULTI-MONTH HIGHS

Silver rallied to a six-month high of $34.92 an ounce earlier, before easing to $34.75. It was headed for a 3.2-percent weekly rise, extending a winning streak to a fourth week.

"Silver is poised to test the next resistance level at $35.4," said a Shanghai-based trader, "The sentiment remains bullish, as many investors are just entering the market after confirmation of the QE3 overnight."

The recent rally, which has lifted silver by about 25 percent over the past month, is suppressing short-term physical demand, weighing on the discount of spot silver versus Shanghai silver, he added.

"Usually we see a discount in spot of 10 to 20 yuan, but these days it is 60 to 70 yuan."

Shanghai silver rallied more than 5 percent to 7,290 yuan per kg.

However, physical silver consumers may be forced to buy at high prices if the upward trend continues.

Spot platinum jumped 2 percent to a six-month high of $1,712.24 an ounce, as concerns about supply deepened with labour unrest in top producer South Africa's mining sector. The metal is headed for a 8-percent rise on the week, its biggest weekly gain since last October.

The gold-platinum spread narrowed to just above $65 an ounce, a level unseen since April, as platinum outperformed gold in recent weeks.

Spot palladium struck a six-month high of $694.50, before paring some gains to $690.30.