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Gold firms after Fed signals pause to rate hikes

May 3, 2023By Reuters

May 3 (Reuters) – Gold firmed on Wednesday after a brief jump to nearly 1% as the US Federal Reserve delivered a widely expected rate hike and signaled a pause in further increases.

Spot gold was 0.4% higher at USD 2,024.19 per ounce by 3:25 p.m. EDT (19:25 GMT) after touching its highest since April 14 at USD 2,036.15 earlier.

US gold futures settled up 0.7% at USD 2,037.

The Fed raised interest rates by a quarter percentage point to quell the inflationary pressures that have kept price rises well above its 2% target.

It also signaled a pause in further increases to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the US debt ceiling, and monitor the course of inflation.

“Gold’s ability to finish unchanged despite hawkish hints from (Fed Chair Jerome) Powell, positions it well for a fresh push toward all-time highs now that the Fed is on pause and the debt ceiling situation looks increasingly dire,” said Tai Wong, an independent metals trader based in New York.

The Fed chief said “we are prepared to do more” with rate rises if needed, but added they may not be far off, and possibly at, a “sufficiently restrictive” level to return inflation to target.

The US dollar index fell 0.6%, making bullion more expensive for buyers holding other currencies, while benchmark 10-year Treasury yields also lowered.

Non-yielding bullion, a customary safe haven against inflation and economic uncertainty, draws lower demand when higher interest rates boost returns on competing assets with yields.

“Concerns regarding US regional banks and the debt ceiling suggest further price volatility is in the offing,” said Standard Chartered analyst Suki Cooper.

Gold prices had gained 1% in April as the US banking crisis spurred a flight to safety.

Silver was up 0.1% to USD 25.41 per ounce, platinum shed 1.4% to USD 1,050.64 while palladium dropped 0.3% to USD 1,425.68.

(Reporting by Deep Vakil in Bengaluru; Editing by Barbara Lewis, Nick Macfie, Shilpi Majumdar and Aurora Ellis)

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