Gold hits record above $1,095/oz as dollar drops

By Frank Tang

NEW YORK (Reuters) - Gold hit a record high for a second straight day on Wednesday, moving within striking distance of $1,100 an ounce as the dollar dropped broadly after the Federal Reserve said it intended to keep interest rates low for some time.

The dollar weakness against the euro and a basket of major currencies added to momentum triggered by India's purchase of 200 tons of gold from the International Monetary Fund.

"The Fed is still looking at the low rates for an extended period of time. The easy monetary policy is here to stay for a little longer. The conditions remain in place for gold to continue to move higher," said Tom Hartmann, broker at California-based Altavest.

The Federal Reserve on Wednesday expressed growing confidence that a U.S. economic recovery was building, and it committed to keep borrowing costs near zero. It also left benchmark rates unchanged in a range of zero to 0.25 percent.

"The Fed's reasoning for feeling comfortable with keeping rates low is that it doesn't see inflation fundamentals in the market. That may be true in the classic sense of inflation, but if we look at how the falling dollar is affecting commodity prices, that is inflation," Hartmann said.

Spot gold struck a high of $1,097.25 an ounce after the Fed statement, and was last at $1,096.45 an ounce at 3:25 p.m. EST (2025 GMT) against $1,084.50 late in New York on Tuesday.

Traders also cited strong sentiment after the IMF said earlier this week that it had sold 200 tons of gold to the Reserve Bank of India, half of a long-planned bullion sale that had threatened to slow gold's ascent.

"India has (prompted) new speculation of pent-up demand for gold diversification by central banks," said Michael Lewis, head of commodities research at Deutsche Bank.