1st LD Writethru: Gold futures settle nearly 3 percent lower on Fed-induced dollar rally

Gold futures on the COMEX division of the New York Mercantile Exchange dropped nearly 3 percent Thursday to settle at their lowest level since early February as the Federal Reserve's U.S. interest-rate hike and the potential for more aggressive moves in the new year fueled a rally in the dollar.

The most active gold contract for February delivery fell 33.9 U.S. dollars, or 2.91 percent, to settle at 1,129.80 dollars per ounce.

Gold was put under pressure as the U.S. Federal Reserve announced after the market's close on Wednesday that it would raise its key interest rate from 0.50 to 0.75.

Higher interest rates typically make the dollar stronger, which can put pressure on commodities that are pegged to the currency, such as gold. In addition, noninterest-paying assets like gold lose their luster as interest rates increase.

The Fed news fueled a rally in the ICE Dollar Index by 0.90 percent up as of 1930 GMT, which shot to a 14-year high Thursday.

Brien Lundin, editor of Gold Newsletter, said that the market "consensus believes that a resurgent Trump economy will force the Fed to live up to their predictions this time around."

But "rates are rising in the face of the most over leveraged global economy in world history," and he believes that trend will either reverse, or will create havoc so that, forcing the Fed and other central banks to, at some point, "resort to more easing." Endit