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Gold futures slipped on Wednesday, as investors focused on the conclusion of the Federal Reserve’s closely watched two-day meeting, where the U.S. central bank is likely to commence the first of a round of interest-rate increases to combat inflation.
Led by Chairman Jerome Powell, monetary-policy makers were expected to raise interest rates by a quarter percentage point on Wednesday, marking the first such increase since 2018. Investors will be attuned to the language the Fed uses to signal its plan for future rate hikes and its plan for the balance sheet, which can also have the effect of tightening policy.
April gold
GCJ22,
GC00,
receded $14.20, or 0.7%, to $1,915.50 an ounce, a day after declining 1.6% to notch the lowest most-active contract finish since March 2, according to FactSet data.
May silver
SIK22,
was also down by 22.8 cents, or 0.9%, at $24.93 an ounce.
Stephen Innes, managing partner at SPI Asset Management, said that in the current interest rate environment, gold prices have only benefitted from safe-haven flows that have come on the back of the Russia-Ukraine war. “Once that support completely evaporates, gold loses a significant anchor,” he said in a recent note.
Gold is likely to hang around the $1,850 to $1,950 range “on a residual higher commodity inflation effects, before falling below $1,800 towards the end of the year as the Fed will keep the pedal to the metal on rate hikes this year.”
The Fed statement will be released at 2 p.m. Eastern time, a half-hour after Comex gold futures settle. Powell will host a Q&A at 2:30 p.m.
“Gold has drifted lower to now be trading only a little above $1,900 an ounce, some way off the all-time record it was flirting with last week,” wrote Rupert Rowling, market analyst at Kinesis Money, in a daily note.
“Gold has come under further pressure ahead of the Federal Reserve’s monthly interest rate meeting later today, where it seems almost guaranteed that the US central bank will announce its first hike since 2018,” Rowling said.
The prospect of higher rates also was helping to push Treasury yields higher, with the 10-year note
TMUBMUSD10Y,
up at around 2.16%, weighing on buying demand for precious metals which don’t offer a coupon.
Gold has been driven higher by the Eastern European crisis, but worries about the erosive effects of inflation also has supported buying in bullion. Higher rates, however, were expected to dull some of the appeal for the precious metal.
In other Comex trading, May copper
HGK22,
tacked on 2.2% to $4.613 a pound. April platinum
PLJ22,
rose 1% to $1,012.30 an ounce and June palladium
PAM22,
traded at $2,454.50 an ounce, up 1.8%.
