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Fed Rate Decision Puts Gold Prices Under Pressure
Gold prices were slightly higher while investors waited for the US Federal Reserve’s decision.
Many traders expected the Fed to raise interest rates by a quarter of a percentage point.
Gold usually becomes less attractive when interest rates rise because gold does not pay interest.
Higher rates can also make the US dollar stronger.
A stronger dollar can make gold more expensive for people using other currencies.
Inflation and stronger-than-expected jobs data increased expectations of a rate hike.
Tensions between Washington and Iran also pushed oil prices higher and raised concerns about inflation.
Investors were watching the decision and Fed Chair Kevin Warsh’s comments for clues about future rate moves.
Spot gold rose 1.3% to $4,347.91 per ounce as traders awaited the Federal Reserve’s policy decision on 16 September.
US gold futures for December delivery gained 1.3% to $4,388.80, while near-month MCX futures rose ₹1,040 to ₹1,51,850 per 10 grams.
Money markets priced in more than a 90% chance of a quarter-point rate hike, with another increase fully priced in by December.
Higher interest rates and a stronger US dollar could reduce demand for gold because it does not generate interest income.
Gold was down 1.34% in September so far after rising nearly 8% in August, bringing its year-to-date gain to about 12%.
- Who
- The US Federal Reserve, investors, traders, and gold-market participants.
- What
- Markets were awaiting a possible quarter-point Federal Reserve interest-rate hike and assessing its likely effect on gold prices.
- Where
- Global gold markets and India’s Multi Commodity Exchange, or MCX.
- When
- Wednesday, 16 September; the policy decision was expected later that day.
- Why
- Inflation and jobs data had strengthened expectations of higher interest rates, which can reduce demand for non-yielding gold and support the US dollar.
Rate-Hike Pressure
Gold-Support Factors
Effect of higher interest rates
Rate-Hike Pressure
A rate hike could shift investors toward interest-bearing assets such as US Treasuries, reducing gold’s appeal.
Gold-Support Factors
Gold may continue receiving support as an inflation hedge, particularly while inflation remains above the Federal Reserve’s 2% target.
US dollar impact
Rate-Hike Pressure
Higher US rates could strengthen the dollar, making gold more expensive for holders of other currencies and weighing on prices.
Gold-Support Factors
Gold was already receiving support from a weaker dollar before the policy decision.
Inflation and central-bank demand
Rate-Hike Pressure
Persistent inflation could encourage the Federal Reserve to maintain a tighter policy stance, pressuring non-yielding assets.
Gold-Support Factors
Central-bank purchases could continue supporting gold, although the article says those purchases have slowed in recent months.
Key facts
- Spot gold
- Up 1.3% at $4,347.91 per ounce on 16 September.
- US gold futures
- December futures rose 1.3% to $4,388.80.
- MCX gold futures
- Near-month futures rose ₹1,040 to ₹1,51,850 per 10 grams.
- Rate-hike probability
- Money markets priced in a more than 90% chance of a quarter-point hike.
- September performance
- Domestic gold prices were down 1.34% in September so far.
- August performance
- Domestic gold prices rose nearly 8% in August.
- Year-to-date return
- Gold’s year-to-date gain was around 12%.
Sources
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