Gold extended gains on Thursday, rising to its highest level in nearly two weeks as the dollar tumbled after the Federal Reserve signalled a slower pace of US interest rate hike and caution on US economic growth.

Spot gold gained 0.6 per cent to $1,173.60 an ounce by 0302 GMT, after earlier climbing to $1,177.46, its highest since March 9. The metal had gained 1.6 per cent on Wednesday, its biggest one-day jump since January 30.

The Fed had on Wednesday moved a step closer to hiking rates for the first time since 2006, but downgraded its economic growth and inflation projections, signalling it is in no rush to push the borrowing costs to more normal levels.

The US central bank has removed a reference to being “patient’’ on rates from its policy statement, while sounding a cautious note on the health of the economic recovery. It has also slashed its median estimate for the federal funds rate and expressed concern over the strength in the dollar.

“The (Fed’s) statement and press conference suggest that monetary policy is likely to be tightened but at a more moderate pace than the FOMC initially anticipated,’’ ANZ said in a note, referring to the Federal Open Market Committee.

Gold fell to a four-month low earlier this week as concerns mounted regarding higher interest rates. Investors fear higher rates could dent the demand for bullion, which does not pay any interest.

The dollar has gained nearly 8 per cent this year against a basket of major currencies as strong US economic data boosted expectations the Fed would soon start raising interest rates. Diverging global monetary policies have also helped.

But the dollar extended losses to a second session on Thursday after the dovish Fed statement.

“The prospect of continued low interest rates in the US pushed the greenback sharply lower and therefore boosted most asset prices denominated in the dollar,’’ said MKS Group trader James Gardiner.

Immediate resistance for gold sits around $1,180-85, Gardiner said, adding that he sees decent offers leading up to $1,200. Others noted that bullion could see further gains on a short-covering rally.

The Fed’s caution on rates brought some bullion investors back on board.

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.24 per cent to 749.77 tonnes on Wednesday — the first inflow since February 20. The fund had seen some heavy outflows recently that took holdings to their lowest in over a month just earlier this week.

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