Gold climbed on Wednesday to turn higher for the week, as Treasury yields slipped along with the dollar, then extended those gains into the electronic trading session as investors weighed the Federal Reserve’s decision to lift interest rates, as expected.
The U.S. central bank also said it remained “highly attentive” to inflation risks, leaving the door open to further rate hikes.
Price action
-
Gold futures for August delivery
GC00,
+0.29% GCQ23,
+0.29%
gained $6.40, or 0.3%, to settle at $1,970.10 per ounce on Comex, ahead of the Fed announcement. -
Silver futures for September delivery
SI00,
-0.11% SIU23,
-0.11%
gained 15 cents, or 0.6%, to $24.97 per ounce. -
October platinum
PLV23,
+0.31%
declined by $4.60, or 0.5%, to $972 per ounce, while palladium for September delivery
PAU23,
+0.40%
fell by $25.30, or 2%, to $1,255.90 per ounce. -
September copper
HGU23,
-0.04%
fell by a penny, or 0.3%, to $3.90 per pound.
Market drivers
Gold prices finished higher Wednesday, finding support from weakness in the dollar and Treasury yields, then moved up a bit more shortly after the Fed’s policy announcement.
The Federal Reserve on Wednesday raised its benchmark interest rate by a quarter of one percentage point to a range of 5.25%-5.5%, the highest rate in 22 years.
In electronic trading shortly after the decision, August gold was at $1,971.20, up modestly from gold’s settlement price.
Rate hikes “tend to suppress gold prices in the near term,” as higher rates support the U.S. dollar, said Jerry Braakman, president and chief investment officer of First American Trust.
After the Fed decision, however, the ICE U.S. Dollar index
DXY,
was down 0.2% at 101.19, while the yield on the 10-year Treasury
TMUBMUSD10Y,
was at 3.8895%, down from 3.911% on Tuesday.
Higher rates “ultimately will increase the risk of recession by slowing economic activity in the U.S.,” said Braakman. In the medium term, “we’ll see a high probability of the economy either entering recession or being stuck in stagflation.”
Gold “does well in both scenarios,” he said.
The Fed decision, which was released about a half hour after the settlement for Comex gold, was the first of a series of policy announcements from major global central banks, including the European Central Bank and Bank of Japan, due out this week.
With “little new clarity” on the path or pattern of future Fed rate hikes, the market will focus on the Fed press conference for details on path of rates or whether the Fed is in a holding pattern, said Rob Haworth, senior investment strategist at U.S. Bank Asset Management.
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