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Gold settles high

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Gold futures climbed Thursday to settle at their highest in more than two weeks, as the precious metal tracked a dollar hemmed in by signs the Federal Reserve would adhere to a more-conservative script with interest-rate policy this year.

Prices for the yellow metal briefly tapped a session low as a benchmark dollar index found modest support after President Donald Trump signed tariffs against China.

However, “the trade-war risk is actually bullish for gold, in that investors tend to believe a trade war will lead to greater price inflation,” Brien Lundin, editor of Gold Newsletter, told MarketWatch.

April gold GCJ8, +0.45% added $5.90, or 0.5%, to settle at $1,327.40 an ounce—marking its highest finish since March 7, according to FactSet data. The contract finished Wednesday at $1,321.50 an ounce, then extended that gain in after-hours trading in reaction to the Fed.

The central bank on Wednesday stuck to its December forecast for three rate increases in 2018 but pushed up its expected rate path in 2019 and 2020. Investors across financial markets had priced in expectations the Fed would raise its benchmark rate by a quarter-percentage point, which it did on Wednesday. See the blog and video of Powell’s press conference

“Then in the days and weeks after the rate hike is announced, they unwind these trades to take any profits they have made, selling the dollar and buying back their short positions in gold,” he said.

The ICE U.S. Dollar Index DXY, +0.14%  edged up 0.1% to 89.877 but had spent time both higher and lower Thursday. Gold and the dollar typically move inversely, as moves in the U.S. unit can influence the attractiveness of commodities to holders of other currencies.

Higher interest rates can drive the dollar north and reduce the appeal of nonyielding precious metals, but gold holders are also watching to make sure a rate-hiking Fed stays ahead of the curve in staving off inflation, against which gold typically acts as a hedge.

Caroline Bain, chief commodities economist with Capital Economics, said that gold will “not be insulated from any negative impact of Fed tightening.”

“Although the consensus is coming round to our view that the Fed will tighten four times this year, we do not think this has been factored into the gold price,” she said.

Her reasoning? Higher rates raise the opportunity cost of holding assets, such as commodities, which do not pay interest. Second, they can lead to lower economic activity and, third, they can boost the value of the U.S. dollar, particularly if interest rates are low elsewhere.

Around the complex, other metals settled lower. May silver SIK8, -0.15%  ended at $16.387 an ounce, down 0.2%.

May copper HGK8, -1.03%  fell 1.3% to $3.02 a pound. April platinum PLJ8, -0.05% shed 0.2% to $949.10 an ounce, while June palladium PAM8, -0.58%  declined by 0.5% to $981.80 an ounce.

Among exchange-traded funds, the iShares Silver Trust SLV, -1.25%  moved 1.2% lower, while the SPDR Gold Shares GLD, -0.49% retreated 0.5% and the VanEck Vectors Gold Miners ETF GDX, -0.96% declined by 0.9%.

Gold futures climbed Thursday to settle at their highest in more than two weeks, as the precious metal tracked a dollar hemmed in by signs the Federal Reserve would adhere to a more-conservative script with interest-rate policy this year.

Prices for the yellow metal briefly tapped a session low as a benchmark dollar index found modest support after President Donald Trump signed tariffs against China.

However, “the trade-war risk is actually bullish for gold, in that investors tend to believe a trade war will lead to greater price inflation,” Brien Lundin, editor of Gold Newsletter, told MarketWatch.

April gold GCJ8, +0.45% added $5.90, or 0.5%, to settle at $1,327.40 an ounce—marking its highest finish since March 7, according to FactSet data. The contract finished Wednesday at $1,321.50 an ounce, then extended that gain in after-hours trading in reaction to the Fed.

The central bank on Wednesday stuck to its December forecast for three rate increases in 2018 but pushed up its expected rate path in 2019 and 2020. Investors across financial markets had priced in expectations the Fed would raise its benchmark rate by a quarter-percentage point, which it did on Wednesday. See the blog and video of Powell’s press conference

“Then in the days and weeks after the rate hike is announced, they unwind these trades to take any profits they have made, selling the dollar and buying back their short positions in gold,” he said.

The ICE U.S. Dollar Index DXY, +0.14%  edged up 0.1% to 89.877 but had spent time both higher and lower Thursday. Gold and the dollar typically move inversely, as moves in the U.S. unit can influence the attractiveness of commodities to holders of other currencies.

Higher interest rates can drive the dollar north and reduce the appeal of nonyielding precious metals, but gold holders are also watching to make sure a rate-hiking Fed stays ahead of the curve in staving off inflation, against which gold typically acts as a hedge.

Caroline Bain, chief commodities economist with Capital Economics, said that gold will “not be insulated from any negative impact of Fed tightening.”

“Although the consensus is coming round to our view that the Fed will tighten four times this year, we do not think this has been factored into the gold price,” she said.

Her reasoning? Higher rates raise the opportunity cost of holding assets, such as commodities, which do not pay interest. Second, they can lead to lower economic activity and, third, they can boost the value of the U.S. dollar, particularly if interest rates are low elsewhere.

Around the complex, other metals settled lower. May silver SIK8, -0.15%  ended at $16.387 an ounce, down 0.2%.

May copper HGK8, -1.03%  fell 1.3% to $3.02 a pound. April platinum PLJ8, -0.05% shed 0.2% to $949.10 an ounce, while June palladium PAM8, -0.58%  declined by 0.5% to $981.80 an ounce.

Among exchange-traded funds, the iShares Silver Trust SLV, -1.25%  moved 1.2% lower, while the SPDR Gold Shares GLD, -0.49% retreated 0.5% and the VanEck Vectors Gold Miners ETF GDX, -0.96% declined by 0.9%.

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