October 31, 2019 / 6:00 AM / 23 days ago

Gold inches up as dollar weakens after Fed's interest rate cut

(Reuters) - Gold prices climbed on Thursday as the U.S. dollar weakened after the Federal Reserve cut interest rates for the third time this year, but signalled the monetary-easing cycle would be paused.

FILE PHOTO: Newly casted ingots of 99.99% pure gold are stored after weighing at the Krastsvetmet non-ferrous metals plant, one of the world's largest producers in the precious metals industry, in the Siberian city of Krasnoyarsk, Russia November 22, 2018. REUTERS/Ilya Naymushin/File Photo

Hopes that the United States and China will sign a preliminary agreement and call a truce to their 16-month trade war was also a factor behind the Fed’s decision to signal that further rate cuts are on hold.

Spot gold XAU= was up 0.1% at $1,496.94 per ounce, as of 0557 GMT. Prices rose nearly 2% this month.

U.S. gold futures GCcv1 inched 0.2% higher to $1,499.70 per ounce.

“We took this step to help keep the economy strong in the face of global developments and to provide some insurance against ongoing risks,” Fed Chair Jerome Powell said.

Powell ticked off an extensive list of reasons why he feels the economy is doing well, and likely to continue to do so under the current stance of monetary policy - from robust consumer spending, strengthening home sales, and asset prices he considered healthy but not to a level of excess.

“Gold might not hold its current upside in the short run as it is likely to suffer a little as some recent economic data showed modest growth in the economy,” said Michael McCarthy, chief market strategist at CMC Markets, attributing the present rise in gold prices to a weaker dollar after Fed’s rate cut.

The dollar index .DXY against a basket of six major currencies dipped 0.3% to 97.36, making gold cheaper for holders of other currencies.

“A rise in inflation might be the next catalyst for gold buying in the short run, as the Fed is more likely to tighten with a higher inflation rate, making some investors hedge against it (inflation),” McCarthy added.

Asian shares cheered the rate cut and U.S. stock futures edged higher, with MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gaining 0.2%.

“While buoyed by a weaker dollar, if equities continue to outperform, it’s challenging to see gold move above the $1,510 critical primary resistance level,” AxiTrader market strategist Stephen Innes said in a note.

Among other metals, palladium XPD= was up 0.4% at $1,813, after jumping nearly 2% in the previous session, and gaining for the third consecutive month.

Silver XAG= edged up 0.3% to $17.92 an ounce, while platinum XPT= advanced 0.2% to $927.13 an ounce.

Reporting by Diptendu Lahiri and Karthika Suresh Namboothiri in Bengaluru, Editing by Sherry Jacob-Phillips and Amy Caren Daniel

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