Latest News

Gold drops 1% after Fed keeps rates stable, signals rate increase this year

The gold price?reversed its course and dropped more than 1%?on Wednesday, after the U.S. Federal Reserve kept its benchmark interest rates steady but warned of a rise in borrowing costs this year. This sent the dollar higher.

By 2:40 pm EDT (1840 GMT), spot gold had fallen 0.7% to $4,299.89 an ounce. U.S. Gold Futures closed 0.6% higher at 4,381.40.

Nine out of 19 policymakers at the U.S. Central Bank believe that they will have to increase the policy rate for this year. This is according to the projections made on Wednesday, after the Fed announced their decision to keep the policy rate within its current range of 3.50% to 3.75%.

Kevin Warsh, in his first press conference as Fed chair following his first meeting of policy makers, announced that he would be launching five task force to examine how the central bank conducts business on critical policy issues.

"This is a brand new Fed. Warsh is sharp and animated. He will be an?steward, not a trustee. Tai Wong, a metals trader, said that changes will be made, but only after careful consideration.

"He also stated twice that he only sees rates as restrictive in housing... making him more hawkish then Powell. I believe that is what's driving the market losses. Warsh didn't do anything to "push back" against the statement and dot plot.

According to the CME FedWatch Tool, the market now expects a 78% probability of a rate increase in December, up from 61% prior to the Fed's decision.

Oil markets also rose, raising inflation concerns. The U.S. Dollar extended its gains after the rate announcement, making greenback priced?bullion? more expensive for overseas buyers.

Gold is often seen to be a hedge against rising inflation. However, higher interest rates tend to put pressure on bullion as it does not offer any yield.

Last week, spot gold reached a low of more than six months as inflation fears caused by the conflict in Iran fueled expectations for rate hikes.

Donald Trump, the U.S. president, said that the agreement with Iran reached last week was not final and he could re-start a bombing campaign in case he didn't like it.

Silver dropped 1.1%, to $69.41 an ounce. Palladium dropped 1.1% and platinum lost 2%. (Reporting and editing by Diti Pjara and Leroy Leo in Bengaluru, and Anjana Anil from Bengaluru)

(source: Reuters)