Gold prices pop as Fed projects just two more rate increases in 2017

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Something for gold bugs to cheer.

The precious metal, which was down as much as 0.1 per cent to $1,197.59 a troy ounce earlier on Wednesday, popped 1.3 per cent to $1,214.96 a troy ounce after the Federal Reserve held its rate forecast steady.

The so-called dot plot of interest rate projections pointed to just two further rates rises this year, following Wednesday’s rise, in keeping with the December forecast. However, that disappointed some hawks that had expected the chart to signal four rate rises this year and proved bullish for gold, which offers no yield.

Moreover, the move also saw the US dollar, the currency in which gold is denominated, fall on the news. The dollar index, which gauges the buck against a basket of half a dozen peers, slid by 0.7 per cent. A weaker dollar makes the precious metal cheaper for foreign buyers.

While the spectre of tighter monetary policy continues to loom on gold, the commodity is also considered a hedge against inflation, which the Fed thinks has “increased in recent quarters” moving closer to its 2 per cent target. Inflation is also expected to rise under Donald Trump’s proposed fiscal stimulus and could help offset concerns stemming from higher rates.

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