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Gold rallied on Wednesday as the dollar and Treasury yields retreated after the Federal Reserve announced the biggest U.S. interest rate hike since 1994 and flagged economic risks.

The Fed raised its target interest rate by three-quarters of a percentage point to stem a surge in inflation and projected a slowing economy and rising unemployment in months ahead.

Spot gold rose 1.4% to $1,833.42 per ounce by 4:09 p.m. EDT (2009 GMT), while U.S. gold futures settled up 0.3% at $1,819.60 per ounce.

Gold received a shot in the arm as the dollar and yields fell, especially after Fed Chair Jerome Powell said 75 bps hike would not be common and if inflation flattens out, the Fed may not need to be as aggressive in raising rates, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

The dollar's retreat bolstered gold's appeal among overseas buyers, while benchmark U.S. Treasury yields also dipped. [USD/] [US/]

"Gold is shouldering higher behind a strong asset rally led by bonds after Powell declared failure to achieve price stability was not an option," said Tai Wong, an independent metals trader in New York, noting gold's price action has been positively correlated to moves in bond and stock markets of late.

"But gold's runway may be limited in a higher and clearly rising rate environment. $1,880-$1,900 per ounce will be a very tough hurdle."

Rate hikes generally tend to reduce appeal for the non-yielding asset, although it is considered an inflation hedge.

Goldman Sachs said a "wealth shock" due to lockdowns in China merely delayed rather than derailed its upside view for bullion. [GOL/AS]

Other metals latched on to gold's run. Spot silver rose 2.9% to $21.69 per ounce, while platinum was up 2.2% at $940.79. Palladium rose 2.6% to $1,862.33 per ounce.