1 hr ago
Gold falls after Fed rate hike boosts dollar
Gold prices dropped after the U.S. central bank raised interest rates.
The rate increased by one-quarter of a percentage point.
The Fed said inflation is still too high.
Kevin Warsh said the central bank is mainly focused on bringing prices under control.
His comments made investors expect more rate increases.
Higher interest rates can make gold less attractive because gold does not pay interest.
The dollar also became stronger, which makes gold cost more for buyers using other currencies.
Spot silver, platinum, and palladium prices fell too, although U.S. gold futures finished higher.
Spot gold fell 1.2% to $4,240.10 per ounce after earlier gaining more than 1%.
The Federal Reserve raised its benchmark rate by 0.25 percentage point to 3.75%-4.00%.
Fed official Kevin Warsh emphasized that inflation remains too high and suggested further rate increases may follow.
The U.S. dollar strengthened against the euro, making gold more expensive for overseas buyers.
Other precious metals also declined, while December U.S. gold futures settled 1.3% higher at $4,387.50.
- Who
- The Federal Reserve, including chief Kevin Warsh, and gold and currency market participants.
- What
- The Federal Reserve raised interest rates, prompting spot gold to fall more than 1%.
- Where
- The U.S. financial markets; the dollar also moved against the euro.
- When
- Wednesday, Sept. 16, with prices reported at 3:10 p.m. ET and the futures settlement later that day.
- Why
- The Fed said inflation remained too high, while the rate hike and stronger dollar reduced gold’s appeal.
Hawkish Fed outlook
Gold and market concerns
Future interest rates
Hawkish Fed outlook
Kevin Warsh’s comments and the Fed’s projections were interpreted as signaling additional rate increases in upcoming meetings.
Gold and market concerns
Higher borrowing costs could pressure gold and other non-yielding metals by reducing their relative appeal.
Inflation protection
Hawkish Fed outlook
The Fed said inflation had remained too high for too long and required continued focus on price stability.
Gold and market concerns
Gold is traditionally viewed as an inflation hedge, so persistent price pressures can support demand for the metal even as higher rates weigh on it.
Key facts
- Fed rate decision
- Rates rose by 0.25 percentage point to 3.75%-4.00%.
- Spot gold
- Down 1.2% at $4,240.10 per ounce at 3:10 p.m. ET.
- Gold session high
- Spot gold earlier reached $4,365.57 per ounce.
- U.S. gold futures
- December futures settled 1.3% higher at $4,387.50.
- Dollar
- The U.S. dollar rose against the euro after the Fed announcement.
- Other metals
- Silver fell 1.7%, platinum declined 2.3%, and palladium dropped 1.5%.
- Fed inflation stance
- Kevin Warsh said inflation was too high and that price stability was the predominant focus.
Quotes
Kevin Warsh
Chief of the U.S. Federal Reserve
“Our predominant focus is on the price stability side of our mandate. Plain fact is that inflation is too high, and has been for too long. This summer's inflation readings do not tell me that underlying trends have meaningfully improved.”
livemint.com
“Warsh's comments are being read as hawkish on top of a hawkish dot plot, which reinforces the view that there will be additional hikes in the upcoming meetings. That is helping the dollar and will pressure metals in the short-term.”
livemint.com
Sources
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