Gold prices dropped on Thursday as a result of conflicting signals from the Federal Reserve, which had held interest rates unchanged but had also issued a warning that at least two more rate increases were probable this year.
The likelihood of additional rate hikes kept traders mostly hesitant of non-yielding assets as the dollar fell to three-week lows following the Fed decision, providing little support for the yellow metal.
The Fed boosted its benchmark rate prediction to a peak rate of 5.6% in 2023, up from a prior forecast of 5.1%, suggesting at least two more 25 basis point raises. While Wednesday’s decision marks the first time the bank has left rates stable since starting a rate hike cycle in 2022.
The price of spot gold decreased 0.2% to $1,939.01 per ounce, while the price of gold futures down 0.2% to $1,950.87 per ounce as of 20:56 ET (00:56 GMT). After the Fed’s decision on Wednesday, the yellow metal mostly reversed its intraday gains and finished even.
Hawkish Fed forecast deflates gold longs’ hopes
Despite the fact that the estimate of at least two additional rate hikes came as a surprise to traders hoping for a prolonged break in the bank’s rate-hike cycle, the Fed had been generally expected to leave rates on hold.
Given that higher rates increase the opportunity cost of owning gold, it was anticipated that gold would profit in particular from the likelihood that U.S. interest rates would remain unchanged for the balance of the year.
But even as the state of the world economy deteriorates and demand for safe havens rises, the possibility of rate increases in the future could reduce the appeal of the yellow metal.
Due to a lack of compelling cues for movement, gold is expected to remain within its narrow trading range for the foreseeable future. This is because it has been stuck there for about a month due to Fed uncertainty.
Markets entirely discounted expectations of any rate cuts by the Fed this year due to hawkish signals from the Fed, which is not good news for the metal markets.
Dropping copper prices and impending rate cuts in China After the Fed’s decision, copper prices among industrial metals slowly decreased, though markets were still anticipating more hints from key importer China.
Futures on copper decreased 0.4% to $3.8448 per pound. After the People’s Bank of China lowered its short-term interest rate to support regional economic growth earlier this week, the red metal experienced a rapid rally.
As part of its efforts to boost China’s faltering economic recovery, the PBOC is currently anticipated by the markets to implement further rate cuts. Later this year, further stimulus in the nation is anticipated to boost economic activity and stimulate copper demand.