Gold hovers near two-week high on weaker dollar after Fed rate view

By Eileen Soreng

(Reuters) - Gold prices held steady on Thursday, hovering near two-week highs hit in the previous session on a weaker dollar after the U.S. Federal Reserve disappointed investors, who were 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 rose 0.1 percent to $1,332.77 per ounce at 0739 GMT. Prices rose to a two-week high of $1,336.59 of Wednesday, and also registered their biggest single-day percentage gain since May 17, 2017.

U.S. gold futures for April delivery rose 0.7 percent to $1,331.10 per ounce.

"The fact that gold approached its recent 2018 low (of $1,306.91) on Tuesday, but failed to penetrate it, must also be construed as a constructive sign for technical traders," INTL FCStone analyst Edward Meir said in a note.

Against a basket of currencies, the dollar index was down 0.3 percent at 89.509, after touching an over one-month low of 89.396. The Fed's decision led the U.S. dollar to its largest fall in two months. [USD/]

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 was up 0.3 percent to $16.57 per ounce, while platinum gained 0.6 percent to $959.30 per ounce.

Palladium was little changed at $989.72 per ounce.

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