Gold Falls Sharply After Fed Holds Interest Rates
Gold prices fell sharply on Wednesday after investors digested the Federal Reserve's decision to hold interest rates steady. This decision marked the first policy meeting under new Chairman Kevin Warsh.
Spot gold last fell 1.03% to $4,285.52 per ounce. US gold futures for August delivery fell 0.84% to $4,317.80.
The Federal Open Market Committee decided to maintain its target benchmark interest rate in the range of 3.50% to 3.75%. The Fed stated that this decision was made to support the central bank's dual mandate of price stability and labor market stability.
In its statement, the Fed emphasized that inflation remains above its 2% target. Price pressures are partly driven by supply shocks that have driven up prices in several sectors, including energy.
For gold, this statement is a source of pressure because it indicates the Fed is not yet comfortable with the current inflationary environment. Even if interest rates are not raised, the affirmation of a commitment to price stability could lead the market to believe that tighter policy will potentially remain in place for longer.
Market transmission is driven by expectations of interest rates, yields, and the US dollar. Gold, as a non-yielding asset, tends to be under pressure when the market perceives the possibility of persistent high interest rates, as the opportunity cost of holding gold increases.
The next focus will be on Kevin Warsh's press conference, the direction of the Fed's interest rate projections, and the response of Treasury yields and the US dollar. As long as inflation remains a primary concern for central banks, gold's recovery potential may remain limited.
Source: Newsmaker.id
