Futures & Commodities

Gold prices fall following Fed rate hike

Key Points
  • The Federal Reserve hiked its benchmark interest rate a quarter point Wednesday.
  • Spot palladium moves away from 8-month highs hit on Tuesday.

Gold prices fell Wednesday after the U.S. Federal Reserve hiked its benchmark interest rate following its two-day meeting.

The Federal Reserve hiked its benchmark interest rate a quarter point Wednesday, upped its anticipation for economic growth this year and next, and provided a road map of what lies ahead through 2021.

As widely anticipated, the policymaking Federal Open Market Committee increased the fed funds rate 25 basis points. That now takes the rate to a range between 2 percent and 2.25 percent, where it last was in April 2008. This is the eighth increase since the Fed began normalizing policy in December 2015.

Gold is sensitive to higher interest rates because they tend to boost the dollar, making gold more expensive for buyers with other currencies.

They also push up U.S. bond yields, reducing the attraction of non-yielding bullion.

A Fed rate hike, the third this year, was unlikely to shift gold prices, said Walter Pehowich, executive vice president of investment services at Dillon Gage Metals.

Markets will instead be looking to the Fed's economic and interest rate projections and comments from Chairman Jerome Powell for something to move gold from its recent trading range of $1,190-$1,210 an ounce.

"If the language says three rate hikes next year, I think there will be a selloff in the price of gold," Pehowich said.

Spot gold slipped 0.8 percent at $1,196 per ounce, while the greenback was slightly stronger against a basket of major currencies.

U.S. gold futures for December delivery settled down $6, or 0.5 percent, at $1,199.10 per ounce.

Gold has fallen more than 12 percent from an April high as a vibrant U.S. economy, expectations of higher U.S. interest rates and fears of a global trade war have caused the dollar to rally.

Investors looking for a safe place to park assets have preferred the U.S. currency to bullion, undermining gold's traditional role as a safe haven, while speculators have ramped up bets that gold prices will fall.

Commerzbank analysts said gold was stuck beneath technical resistance at its 55-day moving average around $1,208 and its 4-month downtrend at $1,220.

They said prices would likely move lower and their long-term outlook had become more negative since gold broke below its 2005-2018 uptrend line, now around $1,215.

Meanwhile, silver dropped 0.6 percent at $14.33 an ounce after touching a three-week high on Tuesday.

Platinum gained 0.3 percent at $824.70 an ounce and palladium increased 0.6 percent at $1,066.98 an ounce, earlier hitting a new 8-month high of $1,070.00.

"On top of a supply squeeze, its mostly bargain hunting now in some of these industrial metals," said Bob Haberkorn, senior market strategist at RJO Futures.