Gold hits seven-week high after Fed pledge

(LONDON) - Gold prices soared Thursday to the highest level in almost seven weeks as the dollar weakened after the US Federal Reserve vowed to keep interest rates near zero for more than two years.

The precious metal hit $1,730.21 an ounce on the London Bullion Market -- which was the highest level since December 8 but still far below the record peak of $1,921.15 struck on September 6.

"With the US Federal pledging to keep interest rates in check until late 2014 -- gold soared," said Ross Norman, boss of British-based bullion broker Sharps Pixley.

"Although there was heavy speculative buying, anxious investors joined the fray who are concerned by currency depreciation as global central banks use easy monetary policies to flood markets with cash."

The bank's policy-setting Federal Open Market Committee (FOMC) announced Wednesday that it would keep its "highly accommodative" monetary policy to support the nation's fragile economic recovery.

The FOMC said its key interest rate would remain near zero through at least 2014, extending a prior timeframe of mid-2013.

In response, the euro surged to $1.3177 -- the highest level since December 21 -- as the Fed news overshadowed lingering worries over a potential Greek debt default.

A weaker US currency makes dollar-priced oil cheaper for buyers using other currencies -- stimulating demand and prices.

"The statements and projections of the Fed resulted in a noticeable depreciation of the US dollar," added Commerzbank analysts in a research note.

"Ultimately, this -- coupled with the prospect of long-term low interest rates -- met with a very positive reception on the gold market," they added.

Gold had surged by $50, or about 3.0 percent in value, within two hours of Wednesday's Fed announcement. And the precious metal enjoyed its biggest one-day surge in four months, according to analysts.