June 12, 2018 / 1:07 AM / 7 days ago

Gold reverses gains after Fed raises rates

NEW YORK/LONDON (Reuters) - Gold prices turned lower on Wednesday after the U.S. Federal Reserve announced it was raising interest rates.

FILE PHOTO: Staff wait for customers inside an empty gold and jewellery store in Shenzhen’s Shuibei district, one of China’s biggest jewellery retail and production hubs, in the southern Chinese city of Shenzhen December 17, 2015. REUTERS/James Pomfret/File Photo

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

Spot gold XAU= lost 0.1 percent at $1,294.73 per ounce by 2:25 p.m. EDT (1825 GMT), after earlier hitting $1,292.15, its lowest since June 5. U.S. gold futures GCcv1 for August delivery settled up $1.90, or 0.2 percent, at $1,301.30 per ounce.

The U.S. dollar strengthened against a basket of major currencies, pressuring gold. .DXY [USD/]

Interest rate hikes push up bond yields, making non-yielding bullion less attractive. They also strengthen the 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 percent and 2 percent, 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 U.S., so there’s not a lot of reason for them to put off raising rates,” said Rob Haworth, senior investment strategist for U.S. 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of the economy’s continuing expansion and solid job growth, rendering the language of its previous policy statements outdated.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 XAG= lost 0.3 percent at $16.80 an ounce after hitting a seven-week high of $16.99.

Platinum XPT= gained 0.1 percent at $894.49 per ounce, after dropping to $887.50, an eight-day low. Palladium XPD= dropped 0.9 percent at $1,009.22 per ounce after dipping to $997.15, its lowest since June 6.

Additional reporting by Karen Rodrigues and Swati Verma in Bengaluru; Editing by Richard Chang and Tom Brown

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