Gold futures finished Wednesday at their lowest price in more than two weeks, then saw volatile moves in electronic trading after the Federal Reserve announced the first interest-rate hike since 2018 to combat inflation.
moved higher immediate after the Fed announcement, then turned lower to touch lows below the $1,900 mark. The contract was last at $1,902.90 an ounce in electronic trading Wednesday afternoon.
The contract had lost $20.50, or 1.1%, to settle at $1,909.20 Wednesday about a half hour before the Fed news. That was the lowest most-active contract finish since Feb. 28, according to FactSet data.
Led by Chairman Jerome Powell, monetary-policy makers said they would raise the Fed benchmark interest rate by a quarter percentage point to between 0.25% and 0.5%. They also laid out plans for ongoing increases in the Fed policy rate.
If there was ever any doubt, the Fed has confirmed that the “era of ‘transitory’ inflation is over,” said Giles Coghlan, chief analyst at HYCM, in emailed commentary. “Policymakers have opted to begin a long-anticipated cycle to hike rates, despite the many uncertainties that persist in the global economy.”
Going forward, any further hiking action “will come with caveats,” he said. “We may see a more dovish approach to tightening, rather than the aggressive approach we have been primed for over the past year.”
Traders and investors could see a “buy the rumor, sell the fact” response to the announcement, which would favor “upside in stocks, gains for gold and silver, as well as EURUSD upside and a drop in U.S. 10-year yields,” said Coghlan.
Earlier Wednesday, ahead of the Fed decision, Stephen Innes, managing partner at SPI Asset Management, said that in the current interest rate environment, gold prices have only benefitted from safe-haven flows that have come on the back of the Russia-Ukraine war. “Once that support completely evaporates, gold loses a significant anchor,” he said in a recent note.
Gold is likely to hang around the $1,850 to $1,950 range “on a residual higher commodity inflation effects, before falling below $1,800 towards the end of the year as the Fed will keep the pedal to the metal on rate hikes this year.”
The prospect of higher rates had helped to push Treasury yields higher Wednesday, with the 10-year note
up at around 2.24% — easing demand for precious metals which don’t offer a coupon.
Gold has been driven higher by the Eastern European crisis, but worries about the erosive effects of inflation also has supported buying in bullion. Higher rates, however, were expected to dull some of the appeal for the precious metal.
Other metals traded on Comex settled on a mixed note Wednesday ahead of the Fed decision, with May silver
down by 45 cents, or 1.8%, to settle at $24.71 an ounce. May copper
tacked on 1.9% to $4.601 a pound.
rose 0.6% to $1,008.10 an ounce, while June palladium
ended at $2,367.30 an ounce, down nearly 1.9%.