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Gold drops 1% as dollar rises after Fed's upbeat economic view

FILE PHOTO: Gold bars at the Austrian Gold and Silver Separating Plant in Vienna

By Brijesh Patel

(Reuters) – Gold prices fell more than 1% on Thursday as the dollar climbed after the U.S. Federal Reserve painted a favourable economic recovery picture but stopped short of offering concrete signals on further stimulus.

Spot gold was down 1.1% to $1,938.12 per ounce by 0321 GMT. U.S. gold futures slipped 1% to $1,951.30.

“Investors across the Asia-Pacific are perhaps not inspired by last night’s FOMC (Federal Open Market Committee) meeting, in which the central bank seems to be reluctant to add stimulus in view of improving fundamentals,” said Margaret Yang, a strategist with DailyFx, which covers currency, commodity and index trading.

“This led to a stronger U.S. dollar, and a weaker gold price,” she added.

The Fed signalled on Wednesday it expected the U.S. economic recovery from the coronavirus crisis to accelerate, with unemployment falling faster than the central bank’s forecast in June.

Following the Fed’s comments, the dollar index rose to a more than one-week high against its rivals, making gold more expensive for holders of other currencies.

Offering some respite to gold, the U.S. central bank pledged keep rates pinned near zero levels until inflation was on track to “moderately exceed” its 2% inflation target “for some time.”

Lower interest rates decrease the opportunity cost of holding non-yielding bullion. Gold is also used as a hedge against inflation.

Meanwhile, data showed U.S. consumer spending slowed in August, pointing to a stall in economic recovery from the pandemic-induced slump.

“Lower for longer interest rates, continued quantitative easing by central banks and the U.S. fiscal position potentially debasing the dollar continue to be long-term supportive factors for a higher gold price,” said Jeffrey Halley, a senior market analyst at OANDA.

Elsewhere, silver dropped 1.8% to $26.73 per ounce, platinum dipped 3.1% to $938.31 and palladium slipped 2.4% to $2,342.67.

(Reporting by Brijesh Patel in Bengaluru; Editing by Subhranshu Sahu)

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