Gold rose on Wednesday, snapping a four-day losing streak, after the Federal Reserve's lukewarm economic assessment and its plan to complete its bond-buying program boosted bullion's safe-haven appeal.
The metal recovered from a three-month low earlier in the day after news showing a record outflow from the world's largest gold-backed exchange-traded fund weighed down on sentiment.
In a statement following its policy-setting meeting, the Fed said that economy is recovering but not sufficient for a significant improvement in labor market conditions, and that justified its $600 billion bond-buying program.
There have been a lot of optimism weighing down on the gold market. To some degree, the Fed statement put some dampening on the stock rally and brings some buying back into the metal, said Frank McGhee, head precious metals trader of Integrated Brokerage Services.
Spot gold rose 0.5 percent to $1,339.92 an ounce by 3 p.m. EST. U.S. gold futures for February delivery settled up 70 cents at $1,333 an ounce prior to the Fed.
Silver gained 2.1 percent at $27.40 an ounce.
The Fed also kept its benchmark rate unchanged near zero, adding that measures of underlying inflation were somewhat low, although it acknowledged rising commodity prices that have fueled global inflation worries.
McGhee said that the Fed's policy statement was friendly to gold as it indicated the U.S. central bank is not going to raise interest rates at its next meeting and possibly beyond.
U.S. COMEX gold futures volume totaled about 250,000 lots, about 15 above its 30-day average and in line with recent higher volume this week, preliminary Reuters data showed.
Open interest in U.S. gold rose 7,000 lots on Tuesday, back above 500,000 lots, after it tumbled more than 10 percent on Monday due to heavy liquidation combined with contract rollover ahead of February's first notice day on January 31, traders said.
SPDR GOLD TRUST RECORD OUTFLOW
The SPDR Gold Trust, the world's biggest gold-backed ETF had its largest one-day outflow on record on Tuesday, reflecting a decline in investor interest.
Barclays Capital said outflows from a range of gold ETFs had brought overall holdings to their lowest in five months.
Traders said that the gold market has been holding relatively firm in light of the additional bullion back on the open market from the ETFs.
Gold has lost 6 percent so far in January, which would be its first monthly decline in six months.
However, investors have stepped up buying call options this week, after option traders reported an increase in puts buying as an insurance against further decline in the price of gold futures.
Gold could face further technical selling due to a head-and-shoulder top pattern and key support was near its late October low at $1,317 an ounce, said Scott Meyers, senior analyst at Pioneer Futures.
Since we are at a very crucial trendline support area, investors are not as willing to take on position, Meyers said. He added the lower price volatility on Wednesday was indicative of a market that's not sure what direction it wants to go.
Spot platinum rose 0.9 percent to $1,799.74 an ounce, while palladium rallied 4 percent to $809.50. Both are expected to rise this year and next as their underlying fundamentals tighten.