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Oil at multi-year lows, precious metals firm after Fed hike

Oil prices remained at multi-year lows in Asia Thursday on the back of an interest rate hike from the U.S. Federal Reserve and higher crude oil stockpile data from the U.S. Energy Information Administration, underscoring vulnerability in the energy sector after OPEC stood back on cutting production.

EIA data released Wednesday ahead of the Fed's rate decision showed crude inventories rose 4.8 million barrels last week—against expectations of a 1.4 million barrel drawdown in a Reuters poll.

The interest rate hike battered prices further, as the move is seen to be supportive to the U.S. dollar that is used to price trade in most major commodities.

A warm winter in the world's largest oil consumer U.S. is also a damper for the beleaguered energy sector.

U.S. WTI crude oil futures settled nearly 5 percent lower at $35.52 a barrel and are trading at $35.38 a barrel in Asia.

Brent crude oil futures settled over percent lower at $37.19 a barrel after hitting $37.11 a barrel, near a 11-year-low. Brent oil is now trading around $37 a barrel.

Federal Reserve Board Chair Janet Yellen.
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Federal Reserve Board Chair Janet Yellen.

Record crude oil stocks for this time of the year are likely to keep oil prices under pressure into the next year, said Capital Economics' commodities economist Thomas Pugh in a note.

Even though interest rate hikes are usually bearish for precious metals such as gold and silver as they are not yield-bearing assets, prices of the two are holding firm.

Spot gold prices gained over 1 percent on Wednesday and are now just 0.5 percent lower around $1067 an ounce.

The spot silver price meanwhile gained over 3 percent on Wednesday and are now down just under 1 percent around $14 an ounce .

IG market analyst Angus Nicolson in Melbourne said the precious metals rallied earlier " as the future path of rate hikes by the Fed looks set to be 'accommodative'.

FOMC officials made it clear in post-meeting documents that the pace of increases will be gradual and dependent on the quality of economic data.

Taking a less sanguine view of the Fed's rate hike was Axel Merk, president and chief investment officer at Merk Investments in San Francisco.

"The question is not what you're getting on a nominal basis (in cash) but what you're getting on a real basis," he said,

He added that the Fed has signaled that it will continue to be behind the curve in hiking rates even if employment and inflation recover, so real interest rates will continue to be low to negative.

"They are only going to hike rates further if inflation picks up and to me that's a wonderful way to diversify by having some gold," Merk added.

HSBC analysts said in a note that FOMC's action leaves gold positioned to build on gains, if only modestly.

"If the rate rise is viewed as mildly dovish, gold prices could rise. That said, there were no dissenters on the rate vote and the term "gradual" was inserted back into the policy statement. These factors will likely limit gold's upside," they said.

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