GOLD PRICES fell below US$1,800 per ounce on Thursday as investors reacted to updated US Federal Reserve projections pointing towards higher interest rates in 2023.
The sell-off followed Wednesday’s policy meeting, with Reuters reporting that 11 Fed officials projected at least two quarter-percentage-point rate increases during 2023.
Spot gold traded approximately 2% lower at US$1,776.10 per ounce at 17:44 GMT on Thursday, having earlier touched US$1,766.29, its lowest level since 3 May.
US gold futures settled 4.7% lower at US$1,774.80 per ounce.
The US Dollar strengthened to its highest level in more than two months following the Fed announcement. A stronger Dollar makes US Dollar-priced bullion more expensive for buyers using other currencies.
US Treasury yields also rose, increasing the opportunity cost of holding gold, which does not pay interest.
Despite the change in policymakers’ projections, the Federal Reserve left its current interest-rate settings unchanged, maintaining the federal funds target range at 0–0.25%.
The central bank also retained its purchases of at least US$80 billion in Treasury securities and US$40 billion in agency mortgage-backed securities each month.
In its statement, the Fed said vaccination progress and substantial policy support had strengthened economic activity and employment. However, sectors most affected by the pandemic remained weak, despite showing improvement.
The Fed described the rise in inflation as largely reflecting temporary factors and reiterated that risks to the economic outlook remained.
Thursday’s market reaction illustrates how expectations about future policy can affect bullion before interest rates actually change. Investors adjusted positions in response to the projected path of rates, even while the Fed continued its existing stimulus measures.
Disclaimer
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