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1st LD Writethru: Gold rallies strongly as Fed statement weighs on dollar

Xinhua, March 18, 2016 Adjust font size:

Gold futures on the COMEX division of the New York Mercantile Exchange bounced back strongly on Thursday as the U.S. dollar slumped amid the dovish announcement of the U.S. Federal Reserve policy meeting.

The most active gold contract for April delivery rose 35.2 U.S. dollars, or 2.86 percent, to settle at 1,265 dollars per ounce.

The precious metal was given support as Federal Reserve Chairwoman Janet Yellen released a statement indicating that they expect the key interest rate to rise to around 0.9 percent by the end of 2016, which analysts note implies two 0.25 percentage point increases over the next nine months.

The goal of the Fed is to soak up some of the banks' 2.5 trillion U.S. dollars of excess reserves as the U.S. economy begins to recover. Banks become more willing to take risks in a bullish economy, and as a result could potentially release some of their excessive reserves, flooding the economy with cash, causing inflation.

This move put pressure on the U.S. Dollar Index, which fell by 0.99 percent to 94.80 as of 19:00 GMT. The index is a measure of the dollar against a basket of major currencies. Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors.

Because of the results of the March FOMC meeting, traders believe that the Fed may raise rates from 0.50 to 0.75 during the June Federal Open Market Committee (FOMC) meeting. According to the CMEGroup's Fedwatch tool, the current implied probability of a hike from 0.50 to 0.75 is at 7 percent at the April 2016 meeting, and 38 percent at the June 2016 meeting.

The precious metal was put under further pressure as the U.S. Department of Labor released a report showing jobless claims on the low end of expectations, rising by 7,000 to 265,000, which analysts note is near record lows.

Gold was put under further pressure as the U.S. Federal Reserve released its Philadelphia Fed Business Outlook Survey which showed the general business conditions at 12.4, much better than expected.

Silver for May delivery rose 81.4 cents, or 5.35 percent, to close at 16.033 dollars per ounce. Platinum for April delivery added 30.4 dollars, or 3.17 percent, to close at 989.10 dollars per ounce. Enditem