Gold dips on profit taking, hovers near 2-wk high on weaker dollar

By Eileen Soreng

(Reuters) - Gold prices inched lower on Thursday as investors took profits after the yellow metal hit a two-week high in the previous session on a weaker dollar after the U.S. Federal Reserve disappointed investors expecting more hawkish comments on interest rate rises.

The Fed raised interest rates on Wednesday and forecast at least two more hikes in 2018, contrary to three more increases most market watchers expected.

In its first policy meeting under new Fed chief Jerome Powell, the U.S. central bank indicated that inflation should finally move higher after years below its 2 percent target and that the economy had recently gained momentum.

"The FOMC statement was more dovish than we thought warranted ... At some stage, the Fed will have to grasp the nettle, but the danger is that in doing so, it will bring forward a credit crunch," said Alasdair Macleod, head of research with Toronto-based Goldmoney Inc.

"These are good conditions for gold, because we can expect the dollar to weaken."

Spot gold was down 0.1 percent to $1,329.91 per ounce at 0341 GMT. Prices climbed 1.6 percent in on Wednesday, its biggest one day percentage gain since May 17, 2017.

U.S. gold futures for April delivery rose 0.67 percent to $1,330.20 per ounce.

Against a basket of currencies, the dollar index was down 0.3 percent at 89.548 after touching a two-week low of 89.481. The Fed's decision led the U.S. dollar to its largest fall in two months.

"Asia is just taking advantage of the higher prices to luck in some value for what they have been buying from last week... Expect support to come around $1,325 area," a Hong Kong-based trader said.

Meanwhile, investors see trade tensions between the U.S. and China lending further support to gold, which is seen as a safe-heaven asset during times of political and financial uncertainty.

"If you factor in the significant near-term geopolitical concerns and the uncertain equity market fallout from an escalation of a trade war with China, gold has to be a mainstay component in any investment portfolio," Stephen Innes, APAC trading head at OANDA, said.

In other precious metals, spot silver rose 0.1 percent to $16.54 per ounce, while platinum gained 0.6 percent to $958.40 per ounce.

Palladium was up 0.1 percent at $990.47 per ounce.

(Reporting by Eileen Soreng in Bengaluru; editing by Richard Pullin)