The sparkle in gold dimmed on Thursday as the Federal Reserve sent shockwaves through financial markets by signaling another interest rate hike this year and a reduced likelihood of monetary policy easing until 2024. Gold prices dipped amid a strengthening U.S. dollar and rising bond yields.
Spot gold eased by 0.1% to $1,927.84 per ounce by 0518 GMT, though it managed to recover some of its earlier losses. Meanwhile, U.S. gold futures shed 1%, trading at $1,948.10.
Wednesday had seen gold reach its highest point since September 1, but the sentiment quickly shifted after the Federal Reserve revised its economic projections, emphasizing the potential for higher interest rates in the future.
“In the aftermath of the FOMC event, there have been some market jitters given the interest rate outlook. As a result, gold is still finding some buyers which is limiting the downside move, at least for the time being,” noted KCM Trade Chief Market Analyst Tim Waterer.
However, Waterer also highlighted that gold might need a slowdown in Treasury yields to see significant gains.
The U.S. dollar index surged by 0.4%, reaching its highest level since March 9. Additionally, two-year Treasury yields soared to a 17-year high following the Fed’s decision to maintain interest rates but pursue a more aggressive policy stance to combat inflation, which they now anticipate will extend into 2026.
Rising interest rates tend to deter investors from non-interest-paying assets like gold, particularly since gold is priced in dollars.
“Commentary signaled rates will likely stay higher for longer, which saw the market price-in reduced rate cut expectations from the Fed funds rate through 2024, which we see driving downward pressure on gold prices in the near term,” observed NAB Commodities Research in a note.
Investors are closely monitoring the Bank of England’s policy decision later in the day, which will determine whether the central bank halts its series of interest rate hikes that began in December 2021.
In the wider metals market, spot silver fell by 0.3% to $23.18 per ounce, platinum slipped 0.9% to $919.94, and palladium dropped 1.1% to $1,260.39. The precious metals landscape remains turbulent, influenced by central bank actions and global economic trends.