The Federal Reserve raised interest rates for the first time since July 2023, lifting the federal funds rate to 3.75%-4.00%. Gold pared some of its earlier gains after the decision, while a pullback in oil prices offered the metal some support.
Gold pared some of its gains on Wednesday after the U.S. Federal Reserve raised the federal funds rate to 3.75%-4.00% from 3.50%-3.75% and flagged further hikes ahead. Spot gold was up 0.9% at $4,330.19 per ounce as of 2:03 p.m. EDT. It had climbed as much as 1.6% to around $4,365.57/oz earlier in the session, while gold futures advanced 1.2% to $4,385.59/oz. Higher interest rates tend to weigh on non-yielding assets such as gold and can strengthen the dollar, making bullion more expensive for foreign buyers.
Fed's dot plot and Warsh's press conference in focus
It is the first rate hike since July 2023 and the first move of any kind on monetary policy since a quarter-point cut in December last year. Rate hike expectations had built steadily on resilient growth, a strong labor market, and elevated inflation, with the Fed's preferred inflation gauge, the PCE price index, showing a 3.7% year-over-year increase that has stayed above the Fed's 2% target for 65 straight months.
The U.S. bond market has played the biggest part in boosting those expectations. The 10-year Treasury yield hit its highest level since April 2007, while the 30-year yield touched a fresh high of over 24 years. According to Tom Hulick, CEO of Strategy Asset Managers: "A hike has largely been priced in." Market participants expect at least one more quarter-point move this year, so traders are now watching the Fed's updated Summary of Economic Projections and Fed Chair Kevin Warsh's post-decision press conference for further cues.
Oil halts its surge
Away from the Fed, gold found support as oil prices halted their weekly surge. Brent crude fell 2.8% to $105.72 a barrel. U.S. West Texas Intermediate dropped 3.1% to $102.55 a barrel.
The decline came as supply disruption jitters eased after a Reuters report that Saudi Arabia was offering more crude loadings to Asian refiners through ship-to-ship transfers off Oman's Sohar port. Data from the American Petroleum Institute also showed an unexpected build in U.S. crude inventories. Supply disruptions had been the major topic of the week after Saudi Arabia's East-West Pipeline was damaged by drone attacks, but Bloomberg News reported Wednesday that Saudi Arabia was seeking to restart the pipeline at half capacity within days.
Source: Investing.com
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