Gold edges lower after Fed says it sees signs inflation will accelerate

NEW YORK/LONDON — Gold prices were flat on Wednesday, but dipped slightly after the US Federal Reserve said it would keep interest rates the same, but expected inflation to rise this year.

On Fed Chair Janet Yellen’s last policy meeting as head of the central bank, the Fed left interest rates unchanged. But its message on inflation signaled it was on track to raise borrowing costs in March under incoming chief Jerome Powell.

Inflation worries generally boost gold, which is seen as a safe haven against rising prices. But expectations that the Fed will raise interest rates to fight inflation make gold less attractive because it does not pay interest.

“Inflation on a 12-month basis is expected to move up this year and to stabilize” around the US central bank’s two-percent target over the medium term, the Fed said in a statement following the two-day meeting.

Spot gold edged down 0.07% at $1,337.20 by 2:41 p.m. EST (1941 GMT), hitting a one-week low, while US gold futures for February delivery settled up $3.60, or 0.30%, at $1,339.

The US dollar turned positive after the Fed statement. A stronger dollar pressures commodities priced in the currency, making them more expensive for buyers using other currencies.

But, “as expected, even though they said the near- term risk to economic outlook looked balanced, they’re clearly setting the stage for a March rate increase and trying to send a message to the market to expect three or so ( rate hikes) in 2018,” said Trey Reik, senior portfolio manager at Sprott Asset Management USA. “Their confidence comes from the fact that there are signs that we’re having this synchronized growth acceleration.”

Gold prices, which have been boosted by a weaker dollar, headed for a third consecutive monthly gain in January, up 2.60%, the biggest monthly increase since August 2017.

In other precious metals, silver climbed 0.40% at $17.20 an ounce after hitting a one-week low of $17.03.

Palladium shed 2.70% at $1,026 an ounce, hitting a fresh five-week low after a 55% gain in 2017.

Platinum dipped 0.10% at $995.20 per ounce. It is up about eight percent for the month. It hit a one-week low in the previous session. —