By Marcy Nicholson and Eric Onstad
NEW YORK/LONDON (Reuters) - Gold rallied for the second straight session on Thursday, climbing to its highest level in over a week after the U.S. central bank signalled only gradual rate tightening and the dollar slid to its lowest in five weeks.
The Federal Reserve on Wednesday raised U.S. interest rates for the second time in three months, as expected, but did not flag any plan to accelerate the pace of monetary tightening as some investors had anticipated.
"I think people were betting on a dot plot and a Fed statement that was more hawkish than what we got," said Trey Reik, senior portfolio manager for Sprott Asset Management USA.
The dollar index <.DXY> hit a five-week low on the back of the Fed announcement. [FRX/]
"Real yields were pumped up ahead of the announcement in expectation of a hawkish hike, instead we got a dovish hike with no change in the forward guidance and that has led to some recovery in gold today," Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, said.
Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
"At the same time we had the election in Holland, which didn't increase the political risk in Europe and is acting as a bit of a counter measure to the rally in gold," Hansen added.
Dutch centre-right Prime Minister Mark Rutte fought off the challenge of anti-Islam and anti-EU rival Geert Wilders to score an election victory that was hailed across Europe on Thursday by governments facing a rising wave of nationalism.
"That's a real strong vote in investors' minds that the euro's not about to collapse anytime soon," Sprott's Reik said.
Meanwhile, inflows of holdings of SPDR Gold Trust
In other precious metals, spot silver
(Additional reporting by Arpan Varghese and Nallur Sethuraman in Bengaluru; Editing by Susan Fenton and Grant McCool)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)