Gold reverses gains after Fed raises rates

[NEW YORK/LONDON] Gold prices turned lower on Wednesday after the US Federal Reserve announced it was raising interest rates.

The Fed's move was widely expected but marked a milestone in the US central bank's shift from policies used to battle the 2007-2009 financial crisis and recession.

Spot gold lost 0.1 per cent at US$1,294.73 per ounce by 2.25pm EDT (1825 GMT), after earlier hitting US$1,292.15, its lowest since June 5. US gold futures for August delivery settled up US$1.90, or 0.2 per cent, at US$1,301.30 per ounce.

The US dollar strengthened against a basket of major currencies, pressuring gold.

Interest rate hikes push up bond yields, making non-yielding bullion less attractive. They also strengthen the US dollar, increasing the cost of gold for buyers using other currencies.

In raising its benchmark overnight lending rate a quarter of a percentage point to a range of between 1.75 per cent and 2 per cent, the Fed dropped its pledge to keep rates low enough to stimulate the economy "for some time" and signalled it would tolerate above-target inflation at least through 2020.

"We're seeing a pretty solid economy in the US, so there's not a lot of reason for them to put off raising rates," said Rob Haworth, senior investment strategist for US Bank Wealth Management.

The Fed has raised rates seven times since late 2015 on the back of the economy's continuing expansion and solid job growth, rendering the language of its previous policy statements outdated.

Fed policymakers projected a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared to one previously.

Investors expect policy announcements from the European Central Bank (ECB) on Thursday, and Japan's central bank on Friday, which could affect gold prices.

The ECB is expected to signal a wind-down of its huge bond-buying programme, which could strengthen the euro and boost European gold demand.

In other precious metals, silver lost 0.3 per cent at US$16.80 an ounce after hitting a seven-week high of US$16.99.

Platinum gained 0.1 per cent at US$894.49 per ounce, after dropping to US$887.50, an eight-day low.

Palladium dropped 0.9 per cent at US$1,009.22 per ounce after dipping to US$997.15, its lowest since June 6.

REUTERS