Spot gold climbed to $1,310/oz Thursday morning, its highest level since August 2014, following the decision by the Federal Reserve late Wednesday to keep rates unchanged, while concerns continue to grow over a possible British exit from the EU.
As well as keeping rates unchanged, as was widely expected, the US central bank simultaneously scaled back forecasts for how fast it will raise rates over the next couple of years on concerns around the economic outlook.
Updated projections revealed that six members from 17 wanted to see just one rate hike this year at Wednesday's meeting, up from one in March.
Fed forecasts now show at least four fewer hikes than previously projected through 2018.
CME Fed Fund Futures show less than a 8% probability that Thursday will see rates lifted for July, from 20% a day earlier. The chance of a hike by December are below 50% for the first time this year.
The Bank of Japan also held monetary policy steady Thursday, even as sluggish global growth and low inflation have put pressure on the central bank to do more to stimulate the economy.
This helped push the yen to a two-year high against the dollar, below Yen 104 for the first time since September 2014.
The dollar was also down against all major currencies on the Fed announcement, except sterling, with the US Dollar Index off 0.2% overnight below $94.50.
As a non-yielding asset, gold benefits from a low interest rate
environment, as well as a weak dollar.
Safe haven demand for gold continues to strengthen as market uncertainty grows on next week's UK referendum over EU membership, with the most recent polling showing a swing to the Leave campaign.
"Market sentiment in Europe continues to be weighed down by concerns over a possible Britain vote to leave the European Union," RBC said in a note Thursday.
While ANZ Bank said that although the impact of a British exit from the EU may be temporary, losses in commodities outside of gold "could be steep."
HSBC's James Steel was even more bullish on the likely impact on gold of a British vote to leave the EU, seeing a rally of up to 10% in gold prices, to around $1,400/oz.
"As a risk-off asset, gold would likely rally in the event of a leave vote. We anticipate a sizable safe haven bid in gold in this event," Steel said.
"The drive higher may be more pronounced if there were to be broader concerns about the future direction of the EU after the vote. Gold could also benefit from the reluctance of investors to move into sterling or even the euro."
Even if the UK does chose to remain within the EU, Steel says gold is unlikely to fall more than 7% to around $1,220/oz, "well supported by a number of outside factors," including lower interest rates, global economic concerns and uncertainty around the US election ahead.
The London Bullion Market Association Gold Price settled at $1,307/oz Thursday morning, its highest level since August 2014, up $23.70 from Wednesday's close.
