By Sumita Layek
March 21 (Reuters) - Gold prices rose to a three-week high on Thursday, after the U.S. Federal Reserve abandoned plans to raise interest rates for the year, while a cut in its U.S. growth forecast exacerbated worries of a global economic slowdown.
Palladium rose to a record high of $1,620.53 an ounce on a sustained supply deficit amid increased demand for the autocatalyst metal.
In addition to bringing its three-year drive to tighten monetary policy to an abrupt end, the Fed also downgraded the U.S. growth, unemployment and inflation forecasts, fuelling concerns about an economic slowdown.
"Markets had been expecting the Fed to be dovish but not to this extent," said Hussein Sayed, chief market strategist at FXTM.
"We also had economic projections being downgraded, which also contributed to more gold buying. We expect gold will be above $1,400 an ounce by the year end."
The dollar index fell sharply, while the benchmark 10-year yield fell to a 14-month low after Fed's decision on Wednesday.
Lower U.S. interest rates tend to pressure the dollar and bond yields, making greenback-denominated gold less expensive for holders of other currencies and increasing the appeal of non-yielding assets such as bullion.
Gold prices have gained over 13 percent since touching more than 1-1/2 year lows in August last year, mainly driven by a dovish Fed, global growth concerns and geopolitical worries.
British Prime Minister Theresa May on Wednesday appealed to lawmakers to support her after the European Union said it could only grant her request to delay Brexit for three months if parliament next week backed her plans for leaving.
Among other precious metals, spot palladium was up 0.6 percent to $1,613.01 per ounce.
"Concerns related to supply risks have ratcheted up a little bit more and that is giving a lift to (palladium) prices," said Cameron Alexander, an analyst with Refinitiv-owned metals consultancy GFMS.
The risk of a ban on exports of precious metals scrap and tailings from major producer Russia added to concerns in an already tight market and pushed prices to record levels, analysts said.
The potential ban also helped platinum mark its highest level since Feb. 28 at $875.15 per ounce. The metal was on track for a fifth straight session of gains, rising 1.6 percent to $873.25.
Silver, meanwhile, gained about 0.7 percent to $15.55 an ounce.