In a statement, the Federal Open Market Committee said its "predominant policy concern remains the risk that inflation will fail to moderate as expected."

"Inflation failing to moderate, per the FOMC decision today, indicates new worries on inflation from the Fed," said Peter Spina, chief investment strategist at GoldSeek.com.

"This, combined with the drop in reference to a rate hike, places pressures on the U.S. dollar and therefore deemed favorable for gold prices," he explained in e-mailed comments. "The initial reaction is a bit muted in the gold markets, but some firming bids are showing and may assist the yellow metal to break past this $660 area barrier."

Since the FOMC's last meeting in late January, more signs of a slowing economy have emerged, including further troubles in the mortgage market and a sharp downward revision to fourth-quarter growth. But inflation worries have also mounted, putting the Fed in a delicate position.

Gold for April delivery rose $1 to close out the regular trading session at $660 an ounce on the New York Mercantile Exchange. It was the contract's strongest closing level since March 1. It had gained $17.50, or 2.7%, during a five-session winning streak.

In electronic trading on CME Globex, the April contract was quoted at $664.60 an ounce, about two hours after the Fed decision.

The Fed announced its decision at 2:15 p.m. Eastern – 45 minutes after the official close of regular metals trading in New York.

"There's absolutely nothing in the latest Fed comments to altar gold's march to $700+," said Peter Grandich, editor of the Grandich Letter. "Their notation the economy is now 'mixed' ratchet their economic outlook lower, and puts another pin in what little hot air remains in the U.S. dollar balloon."

"While the fat lady hasn't sung yet, she's already in the building and has flowers for the gold bears burial upcoming," he said in e-mailed comments.

Before the announcement, James Moore, an analyst at TheBullionDesk.com said in a note to clients that although most people expected the Fed to leave rates unchanged, the recent slowdown in the U.S. housing market had led to speculation the Fed may cut rates, "a move likely to be bearish for the dollar and bullish for gold."

On the currency markets, the dollar had traded mainly higher against its major counterparts, but pared gains against the yen and declined against the euro immediately after the Fed announcement.

Elsewhere in commodities trading, crude futures climbed, but traded off the day's best levels after the Energy Department reported that crude supplies rose for a second week in a row.

Other metals prices lost ground during the regular trading session. May silver fell by 5 cents to close at $13.32 an ounce. June palladium fell $3.30 to end at $352 an ounce and April platinum slipped $5.30 to close at $1,230 an ounce. May copper shed 1.5 cents to finish at $3.019 a pound, a day after closing at a three-month high.

On the supply side, gold warehouse stocks were unchanged at 7.55 million troy ounces and copper supplies rose by 212 short tons to stand at 35,770 short tons as of late Tuesday, according to Nymex data. Silver supplies rose 494,988 troy ounces to stand at 120.17 million troy ounces.