Gold firms up above $2,000 level amid volatility as Fed verdict nears

By Arundhati Sarkar

(Reuters) - Gold firmed well above the $2,000 level on Wednesday, buoyed by uncertainty surrounding the U.S. debt ceiling and other economic headwinds, while investors braced themselves for the Federal Reserve's monetary policy decision.

Spot gold was little changed at $2,016.49 per ounce as of 1010 GMT, after rising more than 1% on Tuesday. It was trading in a narrow $7.01 range.

U.S. gold futures rose 0.1% to $2,025.90.

The Fed's rate decision is expected at 1800 GMT, with an 88% chance of a 25 basis point rate hike.

The central bank is also expected to signal a pause in its tightening cycle, as policymakers balance the need to slow inflation against risks ranging from bank failures to the possibility of a U.S. debt default as soon as next month.

Gold is caught between growing anxiety over the U.S. banking crisis, which has fuelled demand for safe-haven assets, and uncertainty over the Fed's stance, which is capping the upside, ActivTrades senior analyst Ricardo Evangelista said.

Bullion, known as a hedge against inflation and economic turbulence, gained over 1% in April amid the banking crisis. But higher rates tend to dent the zero-yield asset's appeal.

"If the Fed were to surprise with a pause, this would suggest a deepening banking crisis and would likely send gold higher," said Clifford Bennett, chief economist at ACY Securities.

Data on Tuesday showed U.S. job openings dropped in March and layoffs increased to the highest level in more than two years, suggesting some softening in the labor market.

Difficulties surrounding a bipartisan agreement over the debt ceiling has the potential to offer further support to gold, Evangelista added.

Spot platinum rose 0.5% to $1,070.46 per ounce, palladium advanced 1.4% to $1,448.54.

Silver fell 0.3% to $25.32.

Analysts have cut their forecasts for palladium after a 60% price fall, but rising vehicle production should limit any sell-off, a Reuters poll showed.

 

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Varun H K and Sonia Cheema)