Gold Price Flat After Fed Hikes Interest Rates

- September 26th, 2018

The US Federal Reserve decided to hike interest rates for a third time this year at its two-day meeting, sending the US dollar up and keeping gold down.

After two days of meetings regarding monetary policy, the US Federal Reserve officially announced the third interest rate hike of the year on Wednesday (September 26).

The Fed lifted the target federal funds rate by 25 basis points from 2 percent to 2.25 percent, leaving gold virtually unchanged from its decline prior to the hike announcement.

This will be the Fed’s eighth hike in two years, and, as Jim Wyckoff from Kitco news stated, “[the Fed’s] long-term inflation prospects remain unchanged, and non-problematic, despite the recent strong US economic growth.”

 

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This announcement adds to the roadblocks that the yellow metal has faced as of late. Gold has fallen more than 12 percent from an April high thanks to the greenback rallying on the back of increasingly positive US economy, expectations of higher US interest rates and fears of a global trade war.

Due to the current geopolitical landscape, investors are shying away from the once “safe-haven” dubbed precious metals and favouring US currency, which has speculators ramping up their bets that gold prices will fall.

In addition to today’s interest rate hike, the markets are also reacting to the Federal Reserve’s guidance regarding future interest rates. The Fed is on pace to raise rates one more time in December of this year, three times in 2019 and one in 2020.

The policy statement also marked the end of the era of “accommodative” monetary policy.

“The Fed’s announcement today, which included no change in the median number of expected rate hikes, and the addition of projections for 2021, shows the committee expects economic conditions to slow towards longer-term trends over the next three years,” said Roger Aliga-Diaz, chief economist, Americas, Vanguard Group.

“Additionally, the removal of the “accommodative” language on policy sent a somewhat hawkish message to financial markets—as this was offset by expectations for stronger growth in 2018 and 2019,” he added.

As of 4:00 p.m. EST gold was down 0.52 percent, trading at US$1,194.60 per ounce.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.

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