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Gold futures soared to the highest level since August 2014 in European trade on Thursday, as investors digested the latest monetary policy decisions from the Federal Reserve and Bank of Japan.

 

The Fed kept interest rates unchanged on Wednesday, but dialed back forecasts for how fast it will raise rates over the next couple of years, citing concerns over the economic outlook.

 

While the U.S. central bank retained its forecast for two rates this year, updated projections revealed that six members wanted to see one rate hike this year, compared to just one policymaker in March. Fed forecasts also show at least four fewer hikes than previously projected through 2018.

 

Market players are pricing in just an 8% chance for a rate hike in July, down from around 20% a day earlier, and 29% for September, according to CME Group's (NASDAQ:CME) FedWatch tool. December odds were at about 48%, compared to 59% ahead of the Fed outcome.

 

"There are too many uncertainties to justify pulling the trigger" now, said Sung Won Sohn, an economist at the University of California's Martin School of Business. The Fed "wants to make sure that the surprisingly weak payroll number for May is a temporary phenomenon and not a harbinger of a weaker economy to come."

 

Meanwhile, the Bank of Japan kept monetary policy steady on Thursday even as sluggish global growth and anemic inflation put policymakers under pressure to do more to reflate the economy out of stagnation, bolstering the yen and battering Tokyo stocks.

 

The yen rallied nearly 2% against the dollar to hit 103.96, the strongest level since August 2014, while the Nikkei 225 plunged 3% following the BoJ's decision.

 

The dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.4% to 94.30, down sharply from Wednesday’s highs of 95.15.

 

Gold for August delivery on the Comex division of the New York Mercantile Exchange jumped to an intraday peak of $1,314.35 a troy ounce, the highest level in 22 months. It last traded at $1,313.50 by 06:43GMT, or 2:43AM ET, up $25.20, or 1.96%.

 

Prices of the precious metal are up more than 8% so far in June, as market players pushed back expectations for the next U.S. rate hike and amid mounting concerns the U.K. will vote to leave the European Union in a referendum next week.

 

Fitch Ratings raised its gold price assumption to $1,100/oz from $1,000/oz as uncertainty, driven by negative interest rates in parts of Europe and elsewhere, combined with reduced US rate hike expectations, have driven investment sentiment for gold in first-half 2016.

 

Polls show Britons will vote next week to exit the European Union, and that has gold traders betting the precious metal will be a lot more valuable.

 

Prices will rally to the highest in two years if the so-called Brexit campaign succeeds on June 23, reaching US$1,350 an ounce within a week of the vote - about 5 per cent above current levels, according to a Bloomberg survey of 22 traders and analysts. Should a majority choose to remain in the bloc, bullion might slide 2.8 per cent to US$1,250, the survey showed.

 

Gold's gain during the past two weeks already reflects the increased enthusiasm for a breakup, which bulls say will spur demand for a haven asset. The Sun, Britain's biggest-selling newspaper, backed a Brexit on its front page this week. Hedge fund manager Cliff Asness said this week that his US$154 billion firm raised estimates for market risk.

 

"If Britain votes to leave, there will be continued uncertainty about how and when the exit will happen," said Ross Norman, chief executive officer of bullion dealer Sharps Pixley and a 30-year veteran of the industry.

 

"This will drive prices higher." Dollar-denominated gold rallied 5.7 per cent this month and assets in exchange-traded funds backed by the metal are the highest since 2013.

 

Some gold sellers are already getting ready. CoinInvest.com, a Frankfurt-based retailer of bars and coins, extended working hours and added staff to cope with extra demand.

 

It reported sales are up 35 per cent this year. The UK Royal Mint is "prepared for possible market turbulence," according to a statement last month.

 

Gold stocks, such as AngloGold Ashanti Ltd and Barrick Gold Corp, should be in investor portfolios to offset losses if the UK vote sparks a broader equity selloff, Chris Jost, a metals and mining analyst at Goldman Sachs Group Inc, wrote in a report this week.

 

The debate over Brexit, plus a US presidential campaign, weaker dollar and negative interest rates in Japan and Europe, have created one of the biggest gold rallies this decade. After falling three straight years, prices are up more than 20 per cent in 2016.

 

Even if Britain chooses to remain in the EU, there are still a lot of other reasons to be bullish on gold, said David Govett, who trades bullion and foreign exchange at Marex Spectron Group Ltd in London.

 

"I don't think an 'In' vote will lead to a collapse in the price of gold," he said by e-mail. "There's more to this rally than that."

 

If Brexit causes financial markets to deteriorate globally and spreads panic, gold will jump as high as US$1,600, Jeffrey Rhodes, CEO of Zee Gold DMCC in Dubai who's been trading gold since 1978, said in an interview with Bloomberg Television.

 

Gold would slide to US$1,100 if the UK votes to remain in the EU, he said, adding that "massive physical demand" from India and China would stabilise the market.

 

"A Brexit vote would truly be a shock to the system," Ken Hoffman, senior metals and mining analyst at Bloomberg Intelligence, said by e-mail from Princeton, New Jersey. "It seems that despite the polls, most investors I speak with still believe in their gut that the UK will remain."Refernce: Bloomberg,Investing,Yahoo

 

Refernce: Bloomberg,Investing,Yahoo