Gold rose on Friday and was on course for its first weekly gain since February as the dollar hit a five-week low following the Federal Reserve's cautious message on interest rates, making bullion cheaper for holders of non-U.S. currencies.
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The Fed raised U.S. rates on Wednesday as expected, but left its earlier forecast of three rate increases this year unchanged, disappointing some investors who had hoped for hints of a possible fourth hike in 2017. /FRX Spot gold was up 0.2 percent at $1,228.96 an ounce at 1053 GMT, taking its gains this week to 2 percent.
On Thursday the metal hit $1,233.13, its highest since March 6. U.S. gold futures were up 0.1 percent at $1,228.7. "What's happening now is just an inverse trade against the dollar," said Jiang Shu, chief analyst at Shandong Gold Group.
U.S. President Donald Trump's failure so far to push through promised economic stimulus measures may have influenced the Fed, Tom Kendall at ICBC Standard Bank said.
"If infrastructure spending and tax cuts are being pushed further and further out, it gives the Fed more reason to be cautious. That is a bit of a vacuum that gold can rally into," he said.
Failure to deliver swift tax cuts and regulatory reform could puncture a rally in U.S. stocks, said Edward Meir at INTL FCStone.
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"Any retracement in stocks could help gold build on its recent move," he said in a note.
Investors were also looking ahead to the Group of 20 finance leaders' meeting in Germany this weekend, where any attempt by the Trump administration to pursue protectionist policies could fuel demand for gold as a safe haven.
However, strong U.S. economic growth will inevitably push the Fed to ratchet up rates, putting pressure on gold, said ICBC's Kendall. He sees gold averaging $1,140 in the second quarter.
Rate rises lead to higher bond yields, which increase the opportunity cost of holding non-yielding bullion and tend to boost the dollar, in which gold is priced. Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares , fell 0.28 percent on Thursday, their first outflow this week. Silver was 0.4 percent higher at $17.35 an ounce.
Platinum was up 0.3 percent at $956.25. Palladium was 1.2 percent higher at $773.30. (Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Dale Hudson)