PRECIOUS-Gold at near 3-week high as Fed rate decision weighs on equities – Reuters


* Fed says could still raise rates this year

* Eventual rate hike to weigh on gold in longer term

(Updates prices; adds comment, second byline, NEW YORK
dateline)

By Marcy Nicholson and Clara Denina

NEW YORK/LONDON, Sept 18 (Reuters) – Gold rose to a near
three-week high on Friday as the Federal Reserve’s decision to
leave U.S. interest rates unchanged rattled investors’ outlook
on the global economy and weighed on equity markets in developed
economies.

Spot gold was up 0.5 percent at $1,137.34 an ounce at
2:49 p.m. (1849 GMT), after earlier touching its highest level
since Sept. 2, at $1,141.50. Gold was on track to finish the
week up around 2.7 percent, snapping a three-week losing streak.

The Fed kept interest rates unchanged on Thursday in a bow
to worries about the global economy, financial market volatility
and sluggish inflation at home. It left open the possibility of
modest rate rises later this year.

“More supportive is the perception that the Fed seems to
have lost a little confidence itself in the rate hike cycle,”
said Macquarie analyst Matthew Turner. “But we still think there
will be a hike in December and therefore rallies are going to be
capped.”

A majority of Wall Street’s top banks now expect the Fed to
begin increasing rates in December, according to a Reuters poll
conducted on Thursday after the Fed’s policy decision.

“The later the Fed starts hiking, the more the weakness in
gold prices will be shifted towards next year,” said Georgette
Boele, an ABN Amro analyst. “We are negative about gold mainly
because we expect lower demand from investors.”

The Fed also forecast that inflation would creep only slowly
toward its 2 percent target, which could be seen as a negative
for gold, often bought as an inflation hedge.

The dollar slumped to a three-week low against a
basket of major currencies before later turning higher, while
bonds rose, pushing yields sharply lower.

“The Fed’s hesitancy may yet reinforce investors’ worries
about the health of the global economy, rather than reassure
them, leaving gold as one of the few lasting beneficiaries,”
Capital Economics said in a note.

On the physical side, gold discounts in India, the world’s
second-biggest consumer, widened this week as dealers struggled
to offload stocks amid sluggish demand.

Chinese premiums held steady at $5-$6 despite the overnight
jump in prices.

Silver was flat at $15.12 an ounce.

The longer-term outlook for the metal remains bearish,
Julius Baer analyst Carsten Menke said in a note, due to its
dependence on gold’s movements and investment demand.

Platinum fell 0.5 percent to $975.75 and palladium
was down 0.2 percent at $606.50.

(Additional reporting by A. Ananthalakshmi in Singapore;
Editing by David Goodman, William Hardy and Leslie Adler)