Gold reverses gains, drops after Fed says it's moving forward with balance sheet reduction

Key Points
  • Gold prices reversed earlier gains on Wednesday after the U.S. Federal Reserve's policy announcement.
Source: World Gold Council

Gold prices reversed earlier gains on Wednesday after the U.S. Federal Reserve's policy announcement that it will begin in October rolling off its $4.5 trillion balance sheet.

A threat by U.S. President Donald Trump to "totally destroy" North Korea also helped to push the dollar lower while stimulating demand for gold, seen as a safe investment in times of uncertainty. A weaker dollar makes gold cheaper for holders of other currencies.

Spot gold was down 0.76 percent at $1,301.24 an ounce. Gold was trading up slightly at $1,313.88 an ounce in the minutes ahead of the Fed's announcement.

U.S. gold futures for December delivery settled down at $1,316.40 an ounce. It traded up before the Fed announcement, trading as high as $1,319.80.

The market did not raise its benchmark interest rate from its current 1 percent to 1.25 percent target, but indicated that one more hike likely this year. Officials also projected one fewer rate hike than initially forecast between now and 2019.

As the forecast stands with this week's revisions, there would be three increases in 2018 and two in 2019.

What options traders are saying about gold

Gold is sensitive to rising rates because they increase bond yields, making non-yielding assets such as bullion less attractive while also tending to boost the dollar, in which gold is priced.

Technical fibonacci support was around $1,300 with resistance at $1,321.60, ScotiaMocatta analysts said in a note.

In other precious metals, silver was down 1.21 percent at $17.11 an ounce, platinum was 1.16 percent lower at $936.99 and palladium was up 0.12 percent at $909.63.

CNBC's Jeff Cox contributed to this report.