Gold turned lower and tapped the lowest in more than 10 months on Wednesday, after the Federal Reserve raised US interest rates by a quarter point and signalled a faster pace of increases next year, causing the US dollar to rally. The Fed ended its two-day meeting with a statement that was more hawkish than expected in the wake of a string of generally strong economic reports and as the Trump administration takes over with promises to boost growth through tax cuts, spending and deregulation. The rate hike to between 0.5-0.75 percent was expected.
"There is some optimism built into the outlook, as the 'dot' forecast now projects one more rate hike in 2017 than was previously the case in order to keep growth at essentially the same pace as previously projected," said Avery Shenfeld, chief economist for CIBC Capital Markets in Toronto. "We still see five quarter point hikes over the next two years, but now see three in 2017 and two in 2018 versus our earlier call of two and three, seeing the Fed being a bit more pre-emptive in anticipation of some fiscal stimulus."
Higher US rates raise the opportunity cost of holding non-yielding bullion and normally weigh on gold, but markets had already priced in a December rise. Spot gold was down 0.3 percent at $1,154.62 an ounce by 2:43 pm EST (1943 GMT), after falling to the lowest since February 5 at $1,149.66, as yields on shorter-dated Treasuries hit their highest in more than five years. US gold futures settled up 0.4 percent at $1,163.70 prior to the Fed's statement.
"A more hawkish than expected dot plot projection has lifted short-term rates considerably and slapped gold to fresh lows," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York. Data prior to the Fed statement showed US retail sales barely rose in November, while US industrial production fell more than expected. Silver was up 0.5 percent at $16.99 an ounce, platinum was down 0.1 percent at $931.25 and palladium dipped by 0.07 percent at $728.50.
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