Gold prices pared gains in Wednesday’s trade after the U.S. 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 U.S. 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.
The last time the US Federal Reserve raised its benchmark federal funds rate was on July 26, 2023, when it increased the target range by 25 basis points.
New policy projections showed 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.
Fed raises rates despite Trump’s push for cuts
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.
Fed chief Kevin Warsh was picked by Trump in late May amid expectations that he would cut interest rates. However, the Washington 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.
How will the Fed rate hike impact gold prices?
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.
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