Why gold prices climbed after the Fed’s decision to raise interest rates

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Gold futures climbed to a fresh intraday high Wednesday afternoon, their highest in nearly a week, after the Federal Reserve announced a decision to raise its benchmark interest rate, as expected, but also left the door open for further rate hikes. The U.S. central bank on Wednesday raised its benchmark interest rate by a quarter-percentage point to a range of 5.25% to 5.5%, a 22-year high. The official Fed statement released after the meeting “gave no hint of when the Fed might pause its rate hikes once more, as it did at the June meeting, and no guidance on when it might actually pivot and begin cutting rates,” said George Milling-Stanley, chief gold strategist at State Street Global Advisors. Without that additional guidance on the likely course of future Fed activity, and the price of gold “firmed more than $10 an ounce in the immediate aftermath of the announcement,” said Milling-Stanley. August gold GCQ23, +0.49% GC00, +0.49% was at $1,976.30 an ounce in electronic trading. It climbed to as high as $1,979.90 after the Fed announcement, the highest intraday level for a most-active contract since July 20, according to Dow Jones Market Data. Prices had already gained $6.40, or 0.3%, to settle at $1,970.10 on Comex Wednesday, ahead of the central bank’s decision. Higher interest rates may provide a boost to the U.S. dollar, making gold more expensive to foreign buyers, while increasing the yield that investors can get from holding Treasury bonds — but that wasn’t the case Wednesday afternoon. Roughly two hours after the Fed announcement, the ICE U.S. Dollar index DXY, -0.33% , a gauge of the dollar’s strength against major currencies, was down nearly 0.4% to 100.99, providing support for dollar-denominated prices of gold. The yield on the 10-year Treasury TMUBMUSD10Y, 3.864% was at 3.8579%, down from 3.911% on Tuesday. Will Rhind, founder and CEO of GraniteShares, which runs the GraniteShares Bloomberg Commodity Broad Strategy No K-1 exchange-traded fund COMB, -0.41% , said not much changed from the Fed’s last rate hike in May, but that rate hike “did feel a little unnecessary.” The central bank left the benchmark interest rate unchanged in June. Given that, “we believe we could very well have seen the last rate hike of this cycle,” Rhind said. With inflation falling to 3% and rates now at their highest level in 22 years, “the sense of urgency from the Fed is much less than it was during past meetings,” he said. The labor market is also weaker than this time last year, which was noted by the Fed, he said. The government will release its July employment report on Aug. 4. The central bank will continue to be data driven, but markets are “cautiously optimistic about the prospects of tamed inflation and pathway to lower rates,” Rhind said. In his press conference, Fed Chairman Jerome Powell said the central bank would assess additional information on inflation, employment and economic growth before determining its next step and repeatedly stressed that the Fed would keep its options open. Depending on data, it was “certainly possible” the Fed would deliver another rate hike in September or that it would hold steady, Powell said. Overall, the Fed left investors wondering if it has “yet another hike in their quiver,” said Brien Lundin, editor of Gold Newsletter. “Regardless of what that answer may be, the markets, and particularly gold, seem to have accepted that this rate hike cycle has essentially peaked.” “ “Given that the downside of the cycle is inevitable and only the timing is in question, gold seems to represent an exceptional value at current levels.” ” — Brien Lundin, Gold Newsletter Gold appears to have “bottomed earlier this month” and is in the process of factoring in the next eventual move lower in rates, he said. “Given that the downside of the cycle is inevitable and only the timing is in question, gold seems to represent an exceptional value at current levels,” said Lundin.