Gold rises as market anticipates dramatic Fed rate hike

Bengaluru — Gold prices on Wednesday were lifted from near one-month lows by weaker treasury yields, ahead of a potentially aggressive interest rate hike from the US Federal Reserve as it seeks to combat inflation amid mounting fears of an impending recession.

Spot gold was up 0.5% at $1,817.12 an ounce as of 2.29am GMT, after dropping to its lowest since May 16 at $1,803.90 on Tuesday. US gold futures rose 0.3% to $1,818.50.

The federal open market committee (FOMC) is expected to announce its decision on interest rates at 6pm GMT later in the day.

“In our opinion, it is more likely to expect the gold price to rally before the session [Fed announcement], stay stable and then over the course of the following week continue its downward trend,” said Michael Langford, director at corporate advisory AirGuide.

Investors have dramatically raised their bets that the Fed will raise interest rates by 75 basis points (bps) rather than 50 bps, a swing in expectations which has fuelled a violent sell-off across world markets.

Rising short-term US interest rates and bond yields increase the opportunity cost of holding bullion, which yields no interest. Benchmark US 10-year treasury yields eased from a multiyear peak, supporting gold.

“Over the next few weeks, in our opinion, the overall downward trend in the gold price will be maintained with gold breaking below $1,800/oz,” Langford said.

Asian markets were in a pensive mood as shell-shocked investors waited to see just how aggressive the Fed would be on rates, with many fearing drastic action would risk tipping the world into recession.

The dollar steadied near the previous session’s two-decade high, making greenback-priced bullion less attractive for buyers holding other currencies.

Spot silver gained 0.7% to $21.22/oz, while platinum rose 0.8% to $926.89, and palladium firmed 0.5% to $1,824.71.