Gold prices pared gains on Wednesday after the US Federal Reserve raised interest rates by 25 basis points as expected and signalled another hike later this year as it continues its efforts to bring inflation towards its 2% target.
Spot gold was up 0.5% at $4,312.11 an ounce by 2:17 p.m. New York time, after gaining more than 1.5% earlier in the session ahead of the Federal Reserve's policy announcement. Silver on the other end falls 1.43% to $62.94 after it rose 1.5% to $64.6.
The Federal Open Market Committee voted unanimously to raise the benchmark federal funds rate to a range of 3.75% to 4%. The move was widely anticipated by traders and marked the first rate increase by the US central bank since July 2023.
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“Today's policy action will support a timelier return to the committee's 2% goal,” Fed officials said in their statement, referring to the central bank's inflation target.
The Fed's decision was accompanied by indications that policymakers expect to raise rates again later this year, reinforcing the central bank's focus on tackling persistent inflation.
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Higher interest rates are generally negative for gold because the precious metal does not pay interest, making it relatively less attractive compared with interest-bearing assets. However, gold has continued to advance in recent weeks as expectations of a rate increase had already become increasingly embedded in market pricing.
The latest policy signal helped temper gold's earlier rally, with the precious metal giving up part of its gains after the Fed announcement.
US Stocks Turn Lower
US equities also pared their earlier gains following the Fed decision, with major Wall Street indices trading lower. The Dow Jones Industrial Average fell nearly 700 points, or 1.39%, while the S&P 500 declined 0.76%. The Nasdaq Composite was down 0.4%.
The moves came after Fed Chair Warsh said inflation remained too high and there was little evidence that price pressures were slowing.
US Treasury yields moved in different directions following the Fed decision. The 10-year Treasury yield declined three basis points to 4.97%, while the two-year Treasury yield advanced two basis points to 4.69%. The 30-year Treasury yield declined four basis points to 5.33%.
In Europe, Germany's 10-year yield declined three basis points to 3.51%, while Britain's 10-year yield fell nine basis points to 5.30%.
Dollar Strengthens
The US dollar strengthened after Federal Reserve policymakers signalled another interest-rate increase later this year. The Bloomberg Dollar Spot Index gained 0.3%, extending its advance to a third consecutive day. The three-day rally was the strongest for the index since June.
A stronger dollar and higher interest-rate expectations can weigh on gold prices by making bullion more expensive for holders of other currencies and increasing the relative appeal of interest-bearing assets.
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