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Economy, business and finance
US Fed rate hike impact on gold: FOMC outcome on yellow metal decoded
Gold prices fell after the US Federal Reserve raised interest rates by 25 basis points, signalling further rate hikes. Spot gold initially rose but settled at $4,330.19 per ounce amid ongoing inflation concerns and strong economic data.
Gold prices pared gains in Wednesday's trade after the US Federal Reserve raised interest rates and flagged further increases in borrowing costs in the coming months.
Spot gold was up 0.9% at $4,330.19 per ounce, after climbing as much as 1.6% to around $4,365.57 per ounce earlier in the session.
The US Federal Reserve raised interest rates by 25 basis points, as widely expected, with policymakers seeing little evidence of a meaningful slowdown in inflation.
After keeping interest rates steady for four consecutive meetings, the Federal Open Market Committee (FOMC) voted unanimously to raise the federal funds rate by a quarter percentage point to 3.75%-4%.
The decision comes amid persistent price pressures and strong economic data, keeping the central bank focused on bringing inflation back towards its 2% target.
Heading into the decision, investors saw a probability greater than 90% that the Fed would lift rates, based on pricing in federal funds futures, and they see another rate hike by year’s end.
The last time the US Federal Reserve raised its benchmark federal funds rate was on 26 July 2023, when it increased the target range by 25 basis points.
New policy projections showed that 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year, with only two of them seeing rates remaining stable from here. Warsh apparently again did not submit a rate projection.
The rate hike came at a time when US President Donald Trump renewed his pressure on the Fed to cut interest rates, arguing that sharply lower borrowing costs could unleash an unprecedented economic boom. Trump picked Fed chief Kevin Warshrump in late May amid expectations that he would cut interest rates. However, the US's war with Iran has kept energy prices elevated, complicating the Fed’s policy outlook.
Earlier this week, Trump downplayed concerns about oil prices and the war, saying the conflict would end after the midterm elections, although hostilities have shown little sign of easing.
Gold is traditionally viewed as a hedge against inflation, but the Federal Reserve’s rate hike could weigh on the appeal of non-yielding assets such as gold.
The central bank has also signalled a tighter policy outlook, projecting rates to reach the 4.00%-4.25% range by the end of this year and remain there through 2027, which could potentially add pressure on gold prices.
Higher interest rates can make interest-bearing assets, such as US Treasuries, more attractive to investors, potentially diverting some demand away from gold and silver. The rate hike could also support the US dollar as investors seek higher returns from US assets, adding another headwind for precious metals.
A stronger US dollar typically makes gold and silver more expensive for holders of other currencies, which can weigh on demand and prices.
Meanwhile, the extent to which gold continues to draw support from central-bank purchases will remain important, particularly as buying has slowed in recent months.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
Ksheera Sagar has been working as a Market Research Analyst at LiveMint for the past four years, covering stocks, commodities, and broader financial markets. In this role, he closely tracks daily market movements, corporate earnings, sector trends, and macroeconomic developments. <br><br> He has over a decade of experience in the financial services industry and has previously worked with multiple organisations, including global investment bank J.P. Morgan, bringing strong research experience into the newsroom. <br><br> During his career, he has gained extensive exposure to equity research, market analysis, and financial data interpretation, strengthening his expertise across asset classes and market cycles. <br><br> He is known for his data-driven analysis and crisp, listicle-style market stories that break down complex financial developments across key markets for a wide audience. His strong research skills enable him to write detailed and insightful stories on stocks and sectors, focusing on the underlying factors driving market movements. <br><br> His work combines quantitative insights with clear storytelling, presenting financial developments in a clear and structured manner. Moreover, he enjoys writing multibagger and listicle-style copies. Outside of work, Ksheera enjoys playing the piano and exploring new places. He has a keen interest in travel, music, and continuously learning about global markets and economic trends.