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Gold at 1-month low as dollar climbs, Fed holds rates

NEW YORK/LONDON (Reuters) - Gold fell to a one-month low as the dollar firmed on Wednesday, after the U.S. Federal Reserve kept interest rates unchanged as expected and the market reduced expectations of a surprise win by France’s far-right presidential candidate.

Gold bars are seen at the Kazakhstan's National Bank vault in Almaty, Kazakhstan, September 30, 2016. REUTERS/Mariya Gordeyeva/File Photo

The Fed concluded its two-day meeting with a bullish statement that downplayed weak first-quarter economic growth, said inflation has been “running close” to its target, and emphasized the strength of the labor market, in a sign it could tighten monetary policy as early as June.

Spot gold XAU= was down 0.8 percent at $1,246.76 an ounce by 2:58 p.m. EDT (1858 GMT), after falling below the 50-day and 200-day moving averages and touching its lowest since April 5 at $1,244.93.

U.S. gold futures GCcv1 settled down 0.7 percent at $1,248.50.

“The Fed’s apparent comfort with the first-quarter slowdown and its sanguine outlook has pressured gold back to day’s lows as the narrative of two more rate hikes this year remains robust,” said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

“Gold breaking down below the 50- and 200-day moving averages today suggests that further short term losses may be likely.”

As well as reducing demand for non-interest bearing gold, higher rates would make the dollar-denominated metal more expensive for buyers paying with other currencies.

Traders are pricing in a 70 percent chance of a June rate increase, according to the CME Group’s FedWatch Tool.

“Attention will now turn to Friday’s payrolls to get the ball rolling on that front,” said Royce Mendes, director and senior economist at CIBC Capital Markets in Toronto.

The dollar index .DXY firmed 0.3 percent. [USD/]

In the French elections, centrist Emmanuel Macron said French voters should expect verbal “hand-to-hand” combat when he and far-right candidate Marine Le Pen face off in a televised debate on Wednesday evening.

Fears that Le Pen could sweep to a surprise victory had buoyed gold in recent sessions due to its safe-haven appeal.

“There is a clear lead by Macron ... so there is less need to hold gold,” said Quantitative Commodity Research analyst Peter Fertig.

In other precious metals, spot silver XAG= was on track for its most technically oversold level on the 14-day relative strength index since November 2014. It was down 1.4 percent at $16.567 per ounce, after touching the lowest since January 11 at $16.48.

Platinum XPT= sank to $896.35, the lowest in 2017, before moderating to trade 2.1 percent lower at $903.25.

Palladium XPD= slipped 1.9 percent to $799.25.

Additional reporting By Nallur Sethuraman in Bengaluru, editing by David Evans and Chizu Nomiyama