Gold futures rose 1.3% during Yellen's final Fed chair speech

Key Points
  • Interest rates were raised a quarter point to a range of 1.25 percent to 1.5 percent.
  • Gold traded within a range on Wednesday after hitting the lowest in nearly five months in the previous session.
  • The dollar fell after Democrat Doug Jones beat Republican Roy Moore in a bitter U.S. Senate race in Alabama.
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Gold prices jumped after the U.S. Federal Reserve on Wednesday announced a raise in interest rates by a quarter point. Gold backed off its lowest levels in nearly five months after the Fed released its decision.

The move will push the target range to 1.25 percent to 1.5 percent. The interest rate is pegged to a wide variety of debt instruments, such as credit cards and adjustable-rate mortgages.

Fed Chair Janet Yellen began the news conference at 2:30 p.m. ET, her last before her four-year term ends early next year.

Gold is sensitive to rising rates because they push up bond yields, reducing the appeal of non-yielding gold. They also tend to boost the dollar, making gold more expensive for holders of other currencies.

However, the dollar and U.S. yields fell on Wednesday after data showed sluggish growth in consumer prices, contradicting signs that inflation may be firming and suggesting that the Fed may raise rates more slowly next year. The Fed has increased rates twice this year and is expected to raise them three more times in 2018.

The dollar index, which tracks the greenback against a basket of foreign currencies, fell to a session low of 93.64 after the Fed made its statement.

Spot gold jumped 0.93 percent at $1,255 an ounce at 3:04 p.m. ET. On Tuesday it touched $1,235.92, the lowest since July 20.

U.S. gold futures swelled 1.34 percent at $1,258.50 an ounce. Gold prices have tended to fall before recent U.S. rate hikes but to recover shortly afterwards, said Saxo Bank analyst Ole Hansen.

Yellen's successor, Fed Governor Jerome Powell, has hinted that he has a cautious approach to rate increases.

Republican plans to enact tax cuts that would stimulate the economy meanwhile looked harder to achieve after a Democrat won a U.S. Senate seat in Alabama on Tuesday, reducing the small Republican majority. Global shares were close to record highs, continuing a rally that has attracted investment away from gold.

On the technical side, fibonacci support was at around $1,240 and a close below that level could trigger further falls, said Saxo Bank's Hansen. Analysts at ScotiaMocatta said momentum indicators showed gold could reach its July low of $1,204.90.

In other precious metals, silver shot up 2.42 percent at $16.104 an ounce after hitting a five-month low of $15.59. Platinum rose 1.06 percent to around $884.90 an ounce after touching its lowest since February 2016 at $868.80 on Tuesday. Palladium rose 0.27 percent at $1,015.25 an ounce.