Gold settles higher, then falls back under $1,300 after Fed lifts key interest rate
Gold prices settled with a modest gain on Wednesday, then fell back under the $1,300-an-ounce level in electronic trading, as a benchmark U.S. dollar index headed higher in the wake of the U.S. Federal Reserveâ€™s decision to lift a key interest rate.
â€œThe Fed statement is more hawkish, reflecting the apparent signal of an additional rate increase in 2018,â€ said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, so â€œhigher rates and stronger dollar are pressuring gold.â€
â€œGold is likely to remain under pressure,â€ he said. â€œThe economic growth story continues to favor the U.S., relative to foreign growth a boost for the U.S. dollar and a headwind to gold.â€
In electronic trading shortly after the announcement, August gold GCQ8, +0.05% traded at $1,297.60 an ounce. Prices rose $1.90, or nearly 0.2%, to settle at $1,301.30 an ounce ahead of the decision.
â€œGoldâ€™s lack of much responseâ€”at least at this early stageâ€”runs contrary to a pattern that has been traced out since the Fedâ€™s first stab at rate normalization in December 2015,â€ said Brien Lundin, editor of Gold Newsletter. â€œIn short, gold has traded down (and the dollar up) in anticipation of expected rate hikes, with the trends reversing in their wake.â€
After last yearâ€™s June rate hike, â€œit took gold a couple of weeks to begin rallying after that hike, but when it did begin to move, it rallied strongly, eventually posting a 10% gain,â€ said Lundin. â€œIf gold does similarly after this June hike, the rally would take the price well over the key technical level of $1,400.â€
The Fed on Wednesday voted to raise its benchmark federal-funds rate by a quarter-percentage point to a range of 1.75% and 2%. The central bank also said it expects to raise rates four times this year, up from a forecast of three in March.
Fed Chairman Jerome Powell held a mews conference. See the live blog/recap and video of the event here
Rising rates can diminish the appetite for assets like gold because the commodity doesnâ€™t offer a yield, compared against the perceived safety of other assets like government bonds. Higher interest rates can also boost the dollar and dull demand for dollar-denominated commodities.
After the Fed announcement, the ICE U.S. Dollar Index DXY, -0.02% a measure of the dollar against a half-dozen major currencies, was up 0.1% at 93.898. It was trading lower at 93.576 shortly before the news.
The move for the dollar was modest, with â€œnothing majorâ€ in the Fed statement, said Naeem Aslam, chief market analyst at Think Markets UK.
â€œTwo more rate hikes are expected, and the question is if the Fed is taking it too far,â€ he said. The market doesnâ€™t seem to think so, â€œbecause when we look at the gold market, the initial downward reaction wasnâ€™t that strong.â€
Prices had settled below a psychologically significant level at $1,300 Tuesday on the back of a strengthening dollar, and as easing tensions between the U.S. and North Korea dulled the metalâ€™s haven appeal.
Geopolitically, â€œthere is little to get excited about and with President [Donald Trump] Trump and Kim Jong Un now best friendsâ€”another mover for the gold market is removed,â€ said David Govett, head of precious metals at Marex Spectron. Trump and Kim signed a pact Tuesday to work toward a denuclearization of the Korean Peninsula.
Among other Comex-traded metals, July silver SIN8, -0.04% added 0.6% to $16.991 an ounce. July copper HGN8, -0.14% climbed by 0.1% to $3.254 a pound.
July platinum PLN8, -0.19% settled at $902.50 an ounce, up 0.1%, while September PAU8, -0.35% lost 0.8% to $1,007.20 an ounce.
Among exchange-traded funds, SPDR Gold Shares GLD, +0.30% traded little changed and the iShares Silver Trust SLV, +1.32% tacked on 0.3%. The VanEck Vectors Gold Miners ETF GDX, -0.04% edged down by 0.7%.