Gold edges lower after Fed says it sees signs of inflation

By Renita D. Young and Eric Onstad

NEW YORK/LONDON (Reuters) - Gold prices were flat on Wednesday, but dipped slightly after the U.S. Federal Reserve said it would keep interest rates the same, but expected inflation to rise this year.

On Fed Chair Janet Yellen's last policy meeting as head of the central bank, the Fed left interest rates unchanged. But its message on inflation signalled it was on track to raise borrowing costs in March under incoming chief Jerome Powell.

Inflation worries generally boost gold, which is seen as a safe haven against rising prices. But expectations that the Fed will raise interest rates to fight inflation make gold less attractive because it does not pay interest.

"Inflation on a 12-month basis is expected to move up this year and to stabilize" around the U.S. central bank's 2 percent target over the medium term, the Fed said in a statement following the two-day meeting.

Spot gold edged down 0.07 percent at $1,337.20 by 2:41 p.m. EST (1941 GMT), hitting a one-week low, while U.S. gold futures for February delivery settled up $3.60, or 0.3 percent, at $1,339.

The U.S. dollar turned positive after the Fed statement. A stronger dollar pressures commodities priced in the currency, making them more expensive for buyers using other currencies. [FRX/] [USD/]

But, "as expected, even though they said the near-term risk to economic outlook looked balanced, they're clearly setting he stage for a March rate increase and trying to send a message to the market to expect three or so (rate hikes) in 2018," said Trey Reik, senior portfolio manager at Sprott Asset Management USA.

"Their confidence comes from the fact that there are signs that we're having this synchronized growth acceleration."

Gold prices, which have been boosted by a weaker dollar, headed for a third consecutive monthly gain in January, up 2.6 percent, the biggest monthly increase since August 2017.

In other precious metals, silver climbed 0.4 percent at $17.20 an ounce after hitting a one-week low of $17.03.

Palladium shed 2.7 percent at $1,026 an ounce, hitting a fresh five-week low after a 55 percent gain in 2017. Despite rocketing earlier in January up to the highest since records dating back to 1990, spot palladium was on track to close the month down 3.3 percent, its weakest monthly performance since December 2016.

Platinum dipped 0.1 percent at $995.20 per ounce. It is up about 8 percent for the month. It hit a one-week low in the previous session.

(Additional reporting by Marcy Nicholson in New York, Nithin Prasad and Nallur Sethuraman in Bengaluru; Editing by Alison Williams and David Gregorio)