Imagine a boxer in a ring, standing tall and victorious, defying all odds. That’s what gold did on Wednesday. The yellow metal, displaying its resilience in the face of Treasury yields and a falling dollar, mounted a comeback to triumph over the week’s earlier downturns. Would you believe the gains continued to grow even after the trading session ended?
The Hike Heard Around the World
The Federal Reserve’s much-anticipated decision was unveiled. They did, as predicted, increase interest rates. But the aftermath of this decision raised questions. Would the central bank continue its vigilance against inflation threats? Might we witness further rate hikes? All of these added to the dramatic suspense that unfolded on the trading floor.
Let’s dive into the specifics of this narrative:
- Gold: Futures for August delivery saw a bump of $6.40 or 0.3%, settling at a comfortable $1,970.10 per ounce on Comex just before the Fed’s announcement.
- Silver: This gleaming metal wasn’t left behind; September futures rose by 15 cents or 0.6% to $24.97 per ounce.
- Platinum and Palladium: These two witnessed a minor setback with platinum declining $4.60 or 0.5% to $972 per ounce and palladium falling $25.30 or 2% to $1,255.90 per ounce.
- Copper: This sturdy metal dropped a mere penny or 0.3% to $3.90 per pound.
What could have possibly sparked gold’s upward trend?
The Puppeteers Behind the Scene
Gold prices found solace in the faltering dollar and Treasury yields. They then steadily climbed higher following the Federal Reserve’s policy announcement. Have you ever pondered why rate hikes generally dampen gold prices? The reason lies in the strengthened U.S. dollar, a direct result of higher interest rates, as noted by Jerry Braakman, president and chief investment officer of First American Trust.
The aftermath of the Fed’s decision was a whirlwind. The ICE U.S. Dollar index dropped 0.2% at 101.19, while the yield on the 10-year Treasury subtly decreased from 3.911% on Tuesday to 3.8895%.
Do higher rates spell doom for economic activity? Braakman thinks so. He suggests that these higher rates could increase recession risk by slowing down U.S. economic activity. He paints two potential scenarios — one of economic recession, the other a stagnant economy with high inflation. But guess what thrives in both circumstances? That’s right, our champion — gold.
What Does The Future Hold?
The Fed’s decision, an opening act in a series of policy announcements from major global central banks this week, leaves the market in anticipation. The European Central Bank and the Bank of Japan are next in line to take the stage.
As the market yearns for more clarity on the pattern of future Fed rate hikes, all eyes are on the upcoming Fed press conference. Will we get insights into the trajectory of rates or will the Fed maintain its current stance? These are the burning questions that Rob Haworth, senior investment strategist at U.S. Bank Asset Management, believes the market will seek answers to.
As the world of finance awaits these vital details, gold continues its journey, reflecting its resilient spirit in a world of monetary uncertainty.