Gold fell to around $4,240 after the Federal Reserve raised rates 25 basis points to a range of 3.75% to 4.00%, then reversed to trade roughly 1% higher within the same session. The rebound came even as the dollar strengthened and policymakers signaled more tightening ahead, a pattern that breaks from how gold reacted to Fed expectations earlier this year.
Gold rebounds despite a hawkish Fed
The Fed delivered its first rate increase in more than three years, a unanimous 25 basis point hike to 3.75%-4.00%. Most policymakers projected at least one more increase this year, and the dollar strengthened to a seven-week high while short-term Treasury yields moved higher.
Those conditions typically weigh on gold because higher rates increase the opportunity cost of holding a non-yielding asset. Yet gold recovered rapidly from its initial post-decision selloff, defying the usual playbook.
From $4,360 to $4,240 and back
Gold traded above $4,360 before the decision and then dropped sharply to around $4,240 once the hike was announced. That swing shows the market found new information in the meeting rather than having already priced in the outcome.
The decline likely pushed out leveraged long positions and encouraged new shorts, since traders finally had confirmation of the bearish case: an actual hike, hawkish guidance and a stronger dollar. But once the selling stalled, short covering itself became a source of demand, and momentum traders joined the rebound.
A reversal from June's playbook
The reaction contrasts with gold's behavior in June, when the metal fell on rising expectations of future tightening rather than an actual hike. On June 23, gold fell around 1.4% as the dollar strengthened and traders raised the odds of a December increase. The next day, gold dropped another 3.3% and moved below $4,000.
In September, the tightening that markets feared in June has now happened, and the dollar and short-term rates remain elevated. Yet gold sits hundreds of dollars above its June lows, suggesting the metal's marginal buyer is currently responding more to positioning and price action than to the macro variables that dominated a few months ago.
What comes next
The next few sessions should clarify whether the shift is temporary, according to the analysis. A move back through the pre-Fed area around $4,350 to $4,365 while the dollar stays firm would support the case that gold has become less sensitive to monetary tightening. A fall back through the post-Fed low near $4,240 would instead point to a short squeeze that trapped a new group of momentum buyers.
Source: Investing.com
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