Gold hits 1-wk high as Fed signals only gradual rate hikes

Gold hits 1-wk high as Fed signals only gradual rate hikes
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BENGALURU (March 16): Gold hit a one-week high on Thursday after the U.S. Federal Reserve signaled a cautious stance on interest rate policy this year, pushing the dollar to its lowest in a month.

The Fed on Wednesday raised interest rates for the second time in three months, with officials sticking to their outlook for two more rate hikes this year and three more in 2018. 

Fed Chair Janet Yellen said that the central bank would stick to a gradual path of interest rate rises, even if inflation runs above its 2% target.      

Spot gold had risen 0.6% to US$1,226.21 per ounce at 0623 GMT, after touching US$1,226.95, the highest since March 7, earlier in the session. U.S. gold futures  for April delivery were up 2.1% at US$1,226.3 an ounce.    

"Yellen reiterated that future rate increases would be 'gradual', with this key word bestowing a dovish tone to the outlook," said INTL FCStone analyst Edward Meir.

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Recent rate hikes have seen gold decline in the run-up to an increase, before recovering in its wake. Gold slumped to a 10-month low in mid-December, after rates were increased for the first time in a year, before turning around to post its strongest increase in seven months in January.

The dollar index was down 0.2% at 100.74, having earlier touched a one-month low.

The euro strengthened against the U.S. currency after early returns showed the Netherlands' centre-right Prime Minister Mark Rutte had roundly seen off a challenge by anti-Islam, anti-EU Geert Wilders in an election on Wednesday, a huge relief to other EU governments facing a wave of nationalism.    

"The market will be looking at the French election coming up relatively soon," ANZ analyst Daniel Hynes said. "However, we would need to see the far right in particular really gather strong resolve from those elections to see gold prices being pushed even higher."

Meanwhile, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.53% on Wednesday.      

Inflows into the fund so far this week have already nearly erased last week's outflows.

In other precious metals, spot silver climbed 0.8% to US$17.43 per ounce, after hitting its highest in a week at US$17.48 earlier in the session.

Platinum was up 1.68% at US$964.99 per ounce, close to US$969.60, its highest since March 7, marked earlier in the day. 
Palladium advanced 1.1% to US$771.50 per ounce.