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US Gold Futures Settle And The Dollar Weakened After The Fed Raised Interest Rates

Derek Wolfe

Updated: March 18, 2022

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Editor’s Note:

EDITOR'S NOTE: The dollar dipped and gold rose in response to Wednesday’s FOMC decision of a 25-basis point rate hike. Investors are trying to price in gold, the dollar, and interest rates as Fed tightening slowly finds its way into the markets and economy. Gold’s five-day pullback came at a very low volume in comparison to its advance topping at $2,078 an ounce. From a technical perspective, it appears as if bulls are poised right beneath the surface of all this selling action. From a longer-term fundamental perspective, it's questionable whether the pace of the rate hikes might help the Fed pull off a “softer landing” for the economy, or whether it's going to be too little and too late; a scenario in which inflation continues to surge faster and higher than most analysts expect. Judging from the Fed’s dismal track record, it’s likely to be the latter. So the notion that the coming series of rate hikes won’t “bode well for gold” is credible only if each hike is potent enough to bring prices down. Considering St Louis Fed’s Bullard’s suggestion for a 1% rate increase, the Fed’s efforts are far from hawkish. This means that inflation’s continuing rise is a likely scenario. It also means that gold’s run may be far from over.

Gold prices steadied on Wednesday as the dollar weakened after the U.S. Federal Reserve raised interest rates by a quarter of a percentage point in a widely expected move.

Spot gold was up 0.1% at $1,920.45 per ounce as of 3:20 p.m. ET. Earlier in the session, bullion fell as much as 1.2% to $1,894.70 as U.S. Treasury yields jumped following the Fed announcement.

U.S. gold futures settled down 1.1% at $1,908.40.

“Gold is holding well as the recent sharp pullback may have run its course. I expect gold prices to trade between $1,880-$1,960 range in the near-term,” said Tai Wong, an independent metals trader in New York.

“However, the Fed was somewhat more hawkish in the dot plot than expected. They are projecting a hike at every meeting going forward in 2022. This does not bode well for gold market.”

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

However, the dollar index fell 0.5% against its rivals, making gold less expensive for other currency holders, while the benchmark 10-year U.S. Treasury yields also pulled back from recent highs.

The Fed projected its policy rate would hit a range between 1.75% and 2% by year end, but flagged the massive uncertainty the economy faces from the war in Ukraine and the ongoing Covid-19 health crisis.

Meanwhile, hopes around progress in peace talks between Russia and Ukraine coupled with a slide in oil prices have dented demand for the safe-haven bullion.

Spot silver gained 0.3% to $24.94 per ounce, while platinum jumped 3.3% to $1,018.65.

Palladium eased 0.2% to $2,418.56 per ounce amid receding supply fears.

Originally published on CNBC.

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