Gold edges lower after Fed says it sees signs of inflation

[NEW YORK] Gold prices were flat on Wednesday, but dipped slightly after the US Federal Reserve said it would keep interest rates the same, but expected inflation to rise this year.

On Fed Chair Janet Yellen's last policy meeting as head of the central bank, the Fed left interest rates unchanged. But its message on inflation signaled it was on track to raise borrowing costs in March under incoming chief Jerome Powell.

Inflation worries generally boost gold, which is seen as a safe haven against rising prices. But expectations that the Fed will raise interest rates to fight inflation make gold less attractive because it does not pay interest.

"Inflation on a 12-month basis is expected to move up this year and to stabilize" around the US central bank's 2 per cent target over the medium term, the Fed said in a statement following the two-day meeting.

Spot gold edged down 0.07 per cent at US$1,337.20 by 2.41pm EST (1941 GMT), hitting a one-week low, while US gold futures for February delivery settled up US$3.60, or 0.3 per cent, at US$1,339.

The US dollar turned positive after the Fed statement. A stronger dollar pressures commodities priced in the currency, making them more expensive for buyers using other currencies.

But, "as expected, even though they said the near-term risk to economic outlook looked balanced, they're clearly setting he stage for a March rate increase and trying to send a message to the market to expect three or so (rate hikes) in 2018," said Trey Reik, senior portfolio manager at Sprott Asset Management USA.

"Their confidence comes from the fact that there are signs that we're having this synchronized growth acceleration." Gold prices, which have been boosted by a weaker dollar, headed for a third consecutive monthly gain in January, up 2.6 per cent, the biggest monthly increase since August 2017.

In other precious metals, silver climbed 0.4 per cent at US$17.20 an ounce after hitting a one-week low of US$17.03.

Palladium shed 2.7 per cent at US$1,026 an ounce, hitting a fresh five-week low after a 55 per cent gain in 2017. Despite rocketing earlier in January up to the highest since records dating back to 1990, spot palladium was on track to close the month down 3.3 per cent, its weakest monthly performance since December 2016.

Platinum dipped 0.1 per cent at US$995.20 per ounce. It is up about 8 per cent for the month. It hit a one-week low in the previous session.

REUTERS