Gold futures ended higher on Wednesday (22nd) and rose further during the electronic session. After the Federal Reserve (Fed) announced that it would raise interest rates by 1 yard (25 basis points), and hinted that it will only raise interest rates once again this year, US bond yields fell and the dollar, helping gold recover from the shadow of its biggest fall in six weeks the day before.
- New York gold futures for delivery in April rose $8.50, or 0.4%, to $1,949.60 an ounce, after plunging 2.1% the day before.
- During electronic trading hours, gold futures rose further to $1,957.40 an ounce.
The Fed’s decision-making group, the Federal Open Market Committee (FOMC), raised interest rates by 1 yard to 4.75-5.00% on Wednesday, in line with market expectations. Officials said in a statement that they remain concerned about inflation risks, but that it may be appropriate to drop the words “continued increase” and say “some additional confirmation” in order to bring inflation back to normal to 2%.
In addition, the statement emphasized that “the US banking system is sound and resilient,” but warned that recent events could dampen economic activity. Meanwhile, a dot plot of interest rate forecasts shows that officials generally expect just one more rate hike this year and cuts next year.
Andrew Schrage, chief executive of Money Crashers, said from the immediate reaction of gold prices after the announcement of the decision, the market expected the rate increase to be roughly 1 yard.
He believes that the latest economic forecast shows that Fed Chairman Powell now believes that the economic outlook is bleaker than at the start of the year, and in the press conference after the meeting on Wednesday, he suggested that ” the tightening cycle ends.”
According to the latest Summary of Economic Outlook (SEP), policy makers do not see a rapid drop in inflation this year, but the economy is likely to be softer.
Joe Cavatoni, chief North American market strategist of the World Gold Council (WGC), pointed out that the recent trend of gold shows that the pace of the rising rate cycle may slow down and the scale may shrink, which is also true of’ r 1 yard Fed rate hike today.
“We are looking at the probability and timing of a recession, and as a result, many investors will be strategically positioned in gold,” said Cavatoni. “The question is how quickly we can see the contours of the economy more clearly.” “
The ICE US dollar index (DXY), which tracks the US dollar against six major currencies, fell 0.6% after the Fed’s decision was announced. The US 10-year bond yield also fell to 3.536 from 3.603% late on Tuesday.
Gold itself does not generate interest, so when US bond yields fall, the opportunity cost of holding gold falls, which is conducive to boosting demand. In addition, gold is denominated in US dollars. When the US dollar weakens, it becomes cheaper for foreign buyers to buy it, which can also help boost demand for gold.
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- Silver futures for May delivery rose 36 cents, or 1.6%, to $22.785 an ounce. It rose further to $22.895 following the Fed decision.
- Copper futures for May delivery rose 5 cents, or 1.3%, to $4.0445 a pound.
- Platinum futures for April delivery rose $10.30, or about 1.1%, to $987 an ounce.
- Palladium futures for June delivery rose $62.60, or 4.5%, to $1,445.70 an ounce.