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Gold prices finish higher, gain more ground after Fed rate-hike decision

By Myra P. Saefong and Joseph Adinolfi

Gold prices finished higher on Wednesday, a day after suffering the biggest pullback for a most-active futures contract in six weeks.

Prices for the precious metal then moved up in electronic trading as the U.S. dollar, as well as Treasury yields, weakened in the wake of Federal Reserve's decision to raise its benchmark fed funds rate by a quarter of a one percentage point.

Price action

Market drivers

The Fed's policy-setting Federal Open market Committee's "widely expected decision to hike the federal funds rate by 0.25% marks a partial return to pre-SVB equilibrium in global markets, including gold," Andrew Schrage, chief executive officer at Money Crashers, told MarketWatch. Gold's price action price action immediately following the announcement "suggests traders had largely priced in this move."

The Fed on Wednesday lifted its benchmark fed funds rate by a quarter of one percentage point to a range of 4.75%-5%.

In a statement, the central bank said "some additional policy firming may be appropriate" to bring inflation back to the 2% target. This language replaces the previous statements that "ongoing increases" in the Fed's benchmark rate would be needed.

However, Fed Chairman Jerome Powell has "telegraphed that the Fed believes the economic outlook is darker today than at the beginning of the year. He indicated in remarks Wednesday that the tightening cycle is coming to a close," said Schrage.

The Fed predicted Wednesday that inflation won't fall quite as rapidly in 2023 and the economy is likely to weaken further.

The interest-rate announcement came at 2 p.m. Eastern time, a half hour after gold futures settled for the session.

Read:What gold's brief rise above $2,000 an ounce means as fears of banking crisis rattle investor nerves

Joe Cavatoni, chief market strategist, North America, at World Gold Council, told MarketWatch that gold's recent behavior "suggests that the pace and scale of the rate cycle may be slowing, and the [Fed's] decision to increase rates by 25 basis points signals the same."

"We are watching for the possibility and timing of an economic recession, and with that, a strategic allocation to gold will likely be a direction many investors will go," he said. "The question is how quickly will we move to a clearer picture with the economy."

The U.S. dollar weakened further against most major currencies following the Fed decision, with the ICE U.S. Dollar index down 0.6%, providing a boost for dollar-denominated gold prices. The yield on the 10-year Treasury also fell to 3.536% from 3.603% late Tuesday.

-Myra P. Saefong

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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03-22-23 1443ET

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