Gold hits one-week high; traders cheer Fed's cheap money

LONDON (Sept 19)   Gold prices hit one-week highs on Thursday after the Federal Reserve shocked markets by choosing not to cut back on its asset-buying program for now, knocking the dollar to a seven-month low against a currency basket.

Bullion gained 4.2 percent on Wednesday, its biggest daily gain since June 2012, after Fed Chairman Ben Bernanke refused to commit to curbing quantitative easing this year.

Many economists had expected a $10 billion reduction in the central bank's $85 billion monthly bond purchases, part of a package of monetary easing measures that have driven a sharp rally in gold in recent years.

Spot gold hit its highest since Sept 10 at $1,373.20, an was last up 0.3 percent to $1,368 an ounce. U.S. gold futures for December delivery jumped 4.7 percent to $1,369 an ounce.

"The market is still digesting the surprise news," Afshin Nabavi, head of trading at MKS, said. "I personally think the numbers we are seeing out of the States are still poor, and QE may remain in place for a bit longer. If my reasoning is correct, gold ought to see a bigger boost on the up side."

"For the next day or two, we ought to trade between 1350-1385," he added. "It should be interesting to see the reaction of the Chinese market when they come in on Monday—they could come in as buyers, as we may have seen the lows in gold for the time being."

China's markets are currently closed for the mid-autumn festival holiday.

Gold, often seen as an inflation hedge and safe-haven investment, has lost some 20 percent of its value this year after the Fed signalled it would start reining in QE, which could indicate the end to ultra-loose monetary policy.