December 17, 2015 / 3:51 AM / 2 years ago

PRECIOUS-Gold falls on Fed rate hike, dollar surge

* Gold gives back some of overnight gains
    * Palladium drops nearly 3 pct
    * Dollar index up 1 pct after U.S. rate hike

 (Updates prices)
    By A. Ananthalakshmi
    SINGAPORE, Dec 17 (Reuters) - Gold slipped on Thursday to
give back some of its overnight gains, with trading choppy as
the dollar surged after the Federal Reserve hiked U.S. interest
rates for the first time in nearly a decade.
    The U.S. central bank raised the range of its benchmark
interest rate by a quarter of a percentage point on Wednesday,
ending a lengthy debate about whether the economy was strong
enough to withstand higher borrowing costs.
    Gold has slumped nearly 10 percent this year, largely on
uncertainty around the timing of the rate rise and on fears that
higher rates would hit demand for the non-interest-paying metal.
It had fallen to a near-six-year low earlier this month. 
    Spot gold had dipped 0.6 percent to $1,066.20 an
ounce by 0609 GMT. The metal had rallied before the Fed decision
on Wednesday and managed to hold most of those gains after the
central bank statement, ending the day up 1.2 percent.
    U.S. gold fell 1 percent to a session low of
$1,064.20, following a 1.4 percent gain in the previous session.
    "This morning, it is more of a dollar story," said a Hong
Kong-based precious metals trader. 
    "The market pretty much expected the comments we heard from
the Fed," the trader said, adding that the most-likely move for
gold was to go lower.
    The dollar index, which measures its strength against
a basket of six major currencies, rose 1 percent on Thursday. A
robust dollar makes greenback-denominated gold more expensive
for holders of other currencies.
    Other precious metals also took a hit from a stronger
dollar. Palladium fell nearly 3 percent to a session low
of $552.22 an ounce, while silver and platinum 
dropped about 1 percent each.
    With the much anticipated first rate hike out of the way,
the focus now shifts to the pace of future rate increases. 
    The U.S. central bank made clear the rate hike was a
tentative beginning to a "gradual" tightening cycle.
 
    But the rate forecasts, or dot points, from Fed members were
a little higher than many expected with 100 basis points of
hikes pencilled in for next year and a terminal rate of 3.5
percent.
    The divergence between the Fed forecasts and the market
could hurt gold prices as investors begin to align their views
with the central bank.    
    "Gold has been extraordinarily sensitive to perceived
changes in monetary policy for many months," said HSBC analyst
James Steel. "The rate rise may finally clear the deck and
remove rate-related uncertainty from the bullion market."
    The Fed action leaves gold positioned for some modest gains,
largely from short-covering, but much of the impact on bullion
will come from the dollar move, he said.
    
    PRICES AT 0609 GMT    
 Metal            Last      Change   Pct chg
                                            
 Spot gold          1066.2    -6.36    -0.59
 Spot silver         14.06   -0.114     -0.8
 Spot platinum       860.2    -12.9    -1.48
 Spot palladium     555.55    -12.9    -2.27
 Comex gold         1065.7    -11.1    -1.03
 Comex silver       14.055   -0.193    -1.35
                                            
 COMEX gold and silver contracts show the
 most active months
 
 (Reporting by A. Ananthalakshmi; Editing by Joseph Radford and
Subhranshu Sahu)

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