Metals

Gold broods over Fed's higher-for-longer rate hike stance

One kilo gold bars are pictured at the plant of gold and silver refiner and bar manufacturer Argor-Heraeus in Mendrisio, Switzerland, July 13, 2022.
Denis Balibouse | Reuters

Gold prices on Thursday fell by as much as 2% to their lowest in about a week as the dollar advanced after the U.S. Federal Reserve said it will deliver more interest rate hikes next year.

Spot gold dropped 1.2% to $1,785.36 per ounce, having earlier slid to a low of $1,771.89. U.S. gold futures fell 1.3% to $1,794.40.

"The Fed is maintaining its hawkish messaging for the time being, despite the declining growth outlook, and in turn without a cut on the horizon, it'll be very difficult for speculators to move their capital towards gold," said Daniel Ghali, commodity strategist at TD Securities.

The Fed on Wednesday raised interest rates by 50 basis points (bps) as expected, but bullion fell as much as 0.8% after comments from Fed Chair Jerome Powell indicated that the U.S. central bank expected interest rates to stay higher for longer.

"The inflation data received so far in October and November show a welcome reduction in the pace of price increases, but it will take substantially more evidence to give confidence inflation is on a sustained downward path," Powell had said.

Bullion is often considered a hedge against big spikes in consumer prices, but interest rate hikes may curb inflationary pressures while also reducing the appeal of non-yielding gold.

The European Central Bank and the Bank of England also raised their key interest rates by half a percentage point on Thursday and indicated that more hikes were likely.

Gold and silver prices are sharply lower "on profit-taking pressure from the shorter-term futures traders, after recent gains," Jim Wyckoff, senior analyst at Kitco Metals said in a note.

Elsewhere, silver dipped 2.1% to $23.39 per ounce, platinum lost 1.6% to $1,012.50 and palladium was down 1.8% to $1,882.75.