December 14, 2016 / 1:14 PM / in 7 months

PRECIOUS-Gold hits 10-month low as Fed signals faster rate hikes in 2017

3 Min Read

* Spot gold prices turn negative after Fed statement
    * Fed raises U.S. interest rates 25 bps as expected
    * Dollar index turns higher after Fed statement

 (Recasts following Fed statement, updates prices; adds comment,
byline, NEW YORK dateline)
    By Marcy Nicholson and Eric Onstad
    NEW YORK/LONDON, Dec 14 (Reuters) - Gold turned lower and
tapped the lowest in more than 10 months on Wednesday, after the
Federal Reserve raised U.S. interest rates by a quarter point
and signaled a faster pace of increases next year, causing the
U.S. 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
preemptive in anticipation of some fiscal stimulus." 
    Higher U.S. 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 p.m. EST (1943 GMT), after falling to the lowest since
Feb. 5 at $1,149.66, as yields on shorter-dated Treasuries hit
their highest in more than five years. 
    U.S. 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.
    "The immediate outlook is bleak, though intransigent bulls
may take comfort in that there shouldn't be many longs left in
the market to stop out."
    The dollar index, which measures the greenback
against a basket of currencies, turned higher after the
statement, rising around 0.5 percent. 
    Data prior to the Fed statement showed U.S. retail sales
barely rose in November, while U.S. 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.

 (Additional reporting by Swati Verma in Bengaluru; Editing by
David Goodman and Chizu Nomiyama)

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