Gold ticks higher on signs Fed will slow pace of rate increases

Silver, platinum and palladium all rose. 
Image: Andrey Rudakov/Bloomberg

Gold rose for a second day after the Federal Reserve signaled that it may slow the pace of interest rate increases, a move that hurt the dollar and pushed Treasury yields lower.

Bullion climbed to a two-week high after the Fed raised rates by 75 basis points Wednesday. Chair Jerome Powell said while a similar move was possible again, the pace of hikes will slow at some point. Ahead of gross domestic product data on Thursday, he rejected speculation the US is in recession.

Despite the post-FOMC meeting rally, the traditional haven is still heading for a fourth straight monthly loss as recent dollar strength and rising interest rates have combined to dim the precious metal’s appeal. Holdings in bullion-backed exchange-traded funds are headed for the biggest monthly drawdown since March 2021.

The Federal Open Market Committee “is strongly committed to returning inflation to its 2% objective,” it said in a statement, repeating language that it’s “highly attentive to inflation risks.” Powell said officials would set policy on a meeting-by-meeting basis rather than offer explicit guidance on the size of the next move.

“The absence of a specific timeline pertaining to the moderation of interest rate hikes still carries some form of vagueness,” said Yeap Jun Rong, market strategist at IG Asia Pte. “Gold prices are riding on the hopes that with it being brought up by Powell at the meeting, some consideration is in place and moderation could come sooner rather than later.”

“That said, the Fed has maintained its clear focus on taming inflation and the upside risks to inflation clearly remains,” said Yeap. “This carries the risk of any inflation persistence ahead keeping the pressure on for the Fed to continue on its hawkish path and put a cap on gold prices’ upside.”

Spot gold added as much as 0.4% to $1 741.78 an ounce, the highest intraday level since July 13, and was at $1 736.28 at 12:24 p.m. in Singapore. The Bloomberg Dollar Spot Index slipped 0.2%, after losing 0.6% in the previous session. Silver, platinum and palladium all rose.

Meanwhile, demand for gold jewelry may slip through 2022 due to weaker economic growth in the biggest markets like China and India, according to the World Gold Council. Physical demand helps provide a floor for prices.

© 2022 Bloomberg

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