Gold rises after Fed minutes signal gradual rate hikes

Investing.com - Gold prices were higher in European trade on Thursday, staying near the strongest level in around three weeks as the U.S. dollar slipped after the Federal Reserve signaled a cautious approach to future rate hikes and the reduction of its $4.5 trillion balance sheet.

Comex gold futures rose $5.00, or around 0.4%, to $1,258.07 a troy ounce by 2:35AM ET (06:35GMT). Meanwhile, spot gold was at $1,258.24, not far from a three-week peak of $1,263.80 touched on Tuesday.

Also on the Comex, silver futures tacked on 12.6 cents, or about 0.7%, to $17.24 a troy ounce, just shy of a one-month high of $17.30 scaled earlier this week.

Minutes from the Fed's last policy meeting showed policymakers agreed they should hold off on raising interest rates until it was clear a recent U.S. economic slowdown was temporary, though most said a hike was coming soon.

The minutes also showed that policymakers favored a gradual reduction in its massive balance sheet. Fed staff proposed that the central bank set a cap on the amount of bonds that would be allowed to run off each month, initially setting it at a low level and raising it every three months.

The somewhat dovish minutes prompted traders to scale back bets on two more rate increases by the end of the year. Futures traders are currently pricing in around an 77% chance of a hike at the Fed's June meeting, according to Investing.com’s Fed Rate Monitor Tool, while odds for a second rate hike by December were at about 40%.

The median Fed policymaker forecast is for two more rate increases by year-end. But a recent run of disappointing U.S. economic data combined with signs of deepening political turmoil in the White House raised doubts over the Fed's ability to raise rates as much as it would like before the end of the year.

The dollar index, which tracks the greenback against a basket of six major rivals, was at 96.90 in London morning trade, not far from six-and-a-half-month lows touched earlier in the week.

The precious metal is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.

Elsewhere in metals trading, platinum held steady at $950.95, while palladium added 0.2% to $765.25 an ounce.

Copper futures were little changed at $2.589 a pound.