May 2, 2018 / 2:08 PM / a year ago

PRECIOUS-Gold extends gains as dollar weakens after dovish Fed remarks

    * Fed holds interest rates steady
    * Dollar weakens after Fed statement
    * Platinum near December lows

 (Recasts throughout; updates prices, headline, market activity
and comments)
    By Renita D. Young and Pratima Desai
    NEW YORK/LONDON, May 2 (Reuters) - Gold prices extended
gains on Wednesday after the U.S. Federal Reserve's dovish
remarks weakened the dollar against a basket of currencies, yet
bullion remained vulnerable to a possible rising greenback and
weak investment demand.
    In a statement following the end of a two-day policy
meeting, the Fed held interest rates steady as expected. The
central bank said inflation had "moved close" to its target and
that "on a 12-month basis is expected to run near the
(policy-setting) Committee's symmetric 2 percent objective over
the medium term."             
    The Fed's rate-setting committee downplayed a recent
slowdown in economic and job growth, saying that activity had
been expanding at a moderate rate and job gains, on average, had
been strong in recent months.
    "The gold market is seeing this as a little dovish,
primarily because some continued to expect the Fed to hike four
times this year and the messaging was a little bit soft," said
TD Securities' Daniel Ghali.
    Higher interest rates dent the appeal of gold, which earns
nothing and costs money to store and insure.
    Spot gold        was up 0.7 percent at $1,312.14 per ounce
by 2:33 p.m. EDT (1833 GMT), while U.S. gold futures         for
June delivery settled down $1.20, or 0.1 percent, at $1,305.60.
    The greenback tipped further below 3-1/2 month highs hit on
Tuesday, making dollar-priced gold cheaper for holders of other
currencies, which boosted interest.              
    Yet, the U.S. dollar is still expected to strengthen as the
euro is expected to weaken, said Walter Pehowich of Dillon Gage
Metals. "I think (today's move) is only temporary. Gold will
still continue to be under pressure on the stronger dollar. Gold
still has more room to the downside."
    The Fed expressed confidence that a recent rise in inflation
to near the U.S. central bank's target would be sustained,
leaving it on track to raise borrowing costs in June.
    "Rising inflation expectations, an overall bullish commodity
trend (late-cycle preference for commodities), geopolitical and
financial risks are being offset by a rising dollar and rising
real-rates," Saxo Bank analysts said in a note.
    Investors often use gold as a hedge against inflation.
    But for now, relatively tame commodities prices are "keeping
longer term inflation at bay," and pressuring gold, said Rob
Lutts, chief investment officer of Cabot Wealth Management.
    Meanwhile, spot silver        rose 2.4 percent at $16.50 per
ounce and palladium        climbed 1.9 percent at $966.90.
    Platinum        gained 0.7 percent at $896.24 an ounce,
earlier dropping to $888, its lowest since Dec. 18.

 (Editing by David Gregorio and Chizu Nomiyama)
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