Gold climbed above the $4,100-an-ounce mark, while silver surged to its highest levels of the session after the US Federal Reserve kept interest rates unchanged and markets pared expectations of a September rate hike.
Spot gold rose 1.78% to $4,100.39 an ounce, extending gains after the Fed maintained the federal funds rate at 3.5%-3.75%. Spot silver advanced 2.88% to $58.771 an ounce, outperforming gold as investors increased exposure to precious metals.
The rally gathered pace after Fed swaps no longer fully priced in a September rate hike, signalling that investors see a lower probability of tighter monetary policy than before the Federal Open Market Committee (FOMC) announcement.
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Markets saw some recovery after Fed's rate decision announcement. Dow Jones which fell 1.59% was trading 1.40% lower at 11:45 p.m., S&P 500 saw some recovery and was down 0.34% and Nasdaq which fell 1.17% is now trading 0.12% lower.
As widely expected, the Federal Reserve kept the federal funds target range unchanged at 3.5%-3.75% in a 9-3 vote. However, three regional Fed presidents, Beth Hammack, Neel Kashkari and Lorie Logan, dissented in favour of raising interest rates, reflecting continued concerns over persistent inflation.
"The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve's dual mandate," the FOMC said in its policy statement.
The decision marks the Federal Reserve's fifth consecutive meeting holding interest rates steady. However, the split vote highlights growing internal pressure, signaling that Fed Chair Kevin Warsh, who assumed leadership in May, may face a tougher challenge maintaining a pause if inflation concerns escalate.
The central bank noted that economic activity continues to expand at a solid pace, supported by strong productivity growth and capital investment, while acknowledging that inflation remains above its long-term 2% target.
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Before the policy decision, markets had largely expected the Fed to stay on hold while assigning a high probability to a September rate increase if inflation remained elevated. However, the post-meeting repricing in interest-rate swaps suggested traders now see a reduced likelihood of that outcome.
Lower expectations of future rate hikes typically support precious metals by reducing the opportunity cost of holding non-yielding assets such as gold and silver.
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