Gold price climbs as Fed cuts outlook for interest rate rises
New York (Mar 17) Gold climbed on Thursday, extending a 2.5 percent rally made in the previous session after the Federal Reserve cut the number of interest rate rises it forecasts for this year, sending the dollar sharply lower.
The U.S. central bank held interest rates steady and indicated that it would tighten policy this year, but fresh projections showed policymakers expect two quarter-point increases by year-end, half the number forecast in December.
Spot gold was up 0.6 percent at $1,269.31 an ounce at 1030 GMT, while U.S. gold futures for April delivery were up 3.3 percent at $1,270.80.
"There has been a general tendency for gold to react in a Pavlovian manner to every announcement from the Federal Reserve, with the price firming on any failure to raise rates, so the initial jump is not too surprising," Glaux Metal consultant David Jollie told the Reuters Global Gold Forum on Thursday.
"I also think we shouldn't expect too much strength immediately after this announcement, since not that many people thought rates would rise again at this point. They key questions are rather what is going to happen to inflation and when might rates rise later this year."
Gold has climbed nearly 20 percent since the end of last year as investors scaled back their expectations that the Fed would continue to push rates higher after December's first increase in nearly a decade.
Rising rates tend to pressure gold by lifting the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced. The dollar slid 1.2 percent against a basket of currencies on Thursday.
While that is supporting gold, it has failed to revisit last week's 13-month high of $1,282.51 an ounce. Further gains could prove elusive without further stimulus, analysts said.
"Gold has already rallied more than $200 an ounce since hitting cycle lows in December, and arguably the ceiling for gold may be approaching," HSBC said in a note.
"The Fed projections may only be conforming to what many in the market already assumed. This could limit further gold gains. That said, the dovish tilt in the Fed's policy statement should be enough to reaffirm and galvanise the gold rally."
Among other precious metals, silver was up 0.7 percent at $15.71 an ounce, while platinum rose 1.1 percent to $986.25 and palladium gained 1 percent to $585.50.
Source: Reuters
