Bullion market came under pressure on Wednesday after the US Federal Reserve held rates steady in the 3.5% to 3.75% range, and signalled the likelihood of a rate cut in 2026.
US spot gold was trading 2.1% lower at $4,241.94 an ounce at 3:45 pm EST (1:17 AM IST on Thursday), whereas silver slumped about 4.5% to $66.8 an ounce.
The plunge in precious metals didn't came immediately after the Fed decision to hold was announced. The sharp decline was triggered by the FOMC's quarterly projection, also known as the Dot plot, which showed that nine out of 18 Fed officials are factoring in at least one rate cut by the end of this calendar year.
Money market, which has an inverse relationship with the bullion, reacted positively to the projections, with yields on two-year Treasuries soaring by 14 basis points to 4.19%. The markent sentiment is driven by expectations of a rate hike by as early as September, Bloomberg reported.
“Half the committee is expecting rate hikes this year, which is a real shot across the bow at the market,” Bob Michele, JPMorgan Asset Management chief investment officer, told the news agency.
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Notably, the historic bull run in the bullion market ended in January-end, when President Donald Trump had confirmed Warsh as his pick to replace then Fed Chair Jerome Powell. Warsh, who served as a Fed governor under the presidency of George Bush, is known as a "inflation hawk".
Even as Trump repeatedly called for rate cuts under Powell's Fed chairmanship, analysts saw the appointment of Warsh as a move to tame inflation and strengthen the dollar in the near-to-medium term. A high-rate environment, along with a strong US dollar, has an inverse impact on precious metals.
Silver is still down by about 40% from its January-end peak, whereas gold has slumped by about 15% from the all-time highs recorded at the start of the year.
ALSO READ: 'Could Happen': Trump Okay With Potential Rate Hike Under Warsh, Reversing Powell-Era Cuts Push
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