Gold at record, dollar down as Fed holds on rates

By Daniel Bases

NEW YORK (Reuters) - Gold reached a record high on Wednesday after the Federal Reserve left near-zero benchmark U.S. interest rates unchanged, prompting a sell-off of the dollar as investors looked elsewhere for higher-yielding assets.

The Fed expressed confidence the economic recovery was gaining traction but stuck to its commitment to keep borrowing costs near zero for "an extended period."

The Fed's announcement gave investors few reasons to boost their stock holdings. U.S. equity prices dropped in late trade after an early rise provided by upbeat European and U.S. economic reports lost steam.

"This doesn't change much. It's hard to figure out how this could be helpful for the upside, though it easily could have been negative," said Jordan Posner, portfolio manager at Matrix Asset Advisors in New York.

"The good news is more an absence of anything bad," he said.

The rally in gold came after India bought half of the 400 tons of gold the International Monetary Fund put up for sale, for $6.7 billion, drawing speculation of what country would be next.

Spot gold hit a record high of $1,097.25 an ounce after the Fed's statement pushed the dollar lower. The lingering impact of the IMF's gold sale to India was also seen as a factor.

"There is a long list of central banks which have very low gold reserve ratios, and in aggregate central banks should be net buyers of gold over the next year for the first time in 20 years," said Michael Lewis, head of commodities research at Deutsche Bank.