Gold gains lustre as investors bet on cautious Fed

Gold scaled a more than five-month peak on Wednesday, bolstered by increasing expectations the U.S. Federal Reserve would tone down its stance on monetary tightening for the next year.

Gold rose for a third straight session, gaining 0.3 percent to $1,252.62 per ounce at 12:45 pm EST (1745 GMT). The metal earlier hit $1,258.03, its highest since July 10.

U.S. gold futures rose 0.2 percent to $1,256.40 an ounce.

"The consensus seems to be that the Fed will undertake one rate hike today and back off on further hikes for the next year, which will be supportive for gold," said Bob Haberkorn, senior market strategist at RJO Futures.

"Once we get through the Fed, 2019 is a perfect storm for precious metals."

Spot gold also broke above the key 200-day moving average at about $1,252.57, which is generally considered as a bullish signal.

Adding to gold's appeal was a weaker dollar, with the U.S. unit pressured by bets that the Fed would hint at plans to rein in interest rate hikes for 2019/2020.

A Reuters poll earlier showed risks of a U.S. recession in the next two years rising to 40 percent, inducing a significant shift in expectations that the Fed will introduce fewer interest rate hikes next year.

Market participants were braced for a rate decision by the central bank at 2 p.m. EST (1900 GMT) after its final two-day policy meeting of the year.

"Gold has already priced in a rate hike today, if they don't hike today it will easily go up by $20," Haberkorn said.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund rose 1.1 percent to 771.79 tonnes on Tuesday, the highest since Aug. 20, indicating rejuvenated investor sentiment for the metal.

Meanwhile, palladium hit a record high of $1,283.49 earlier in the session.

"The ability of the market to come back after selloffs reaffirms its underlying tight fundamentals and we expect palladium will move higher after the FOMC (Federal Open Market Committee meeting) is out of the way," HSBC analyst James Steel wrote in a note on Dec. 18.

Silver gained 0.9 percent to $14.76, while platinum  rose by nearly a percent to $794.10 an ounce.