Gold sustains above $1830 on Fed’s hike

Gold price witness a firmer rebound after hitting a low of $1,815.00 in the late New York session as the Federal Reserve dictated a 75 basis point rate hike after its two-day policy discussion meeting. Fed chair Jerome Powell went beyond his words, took 75 bps into the consideration, and featured the same in the monetary policy decision.

As per the market consensus, a rate hike by 50 bps was expected, however, fresh prints of the US Consumer Price Index (CPI) reported last week, forced the Fed policymakers to move beyond the estimates.

The gold prices are attempting to balance above the supply zone placed in a narrow range of $1,831.70-1,833.88 on an hourly scale.

Earlier during the American trading session, gold is under pressure as the US dollar gets firmer on the back of the Fed’s decision. The Fed raised as expected and now markets are digesting Powell’s press conference.

Gold and silver prices are higher in early-afternoon US trading Wednesday, in the wake of a more aggressive monetary policy tightening move from the Fed.

Safe-haven buying amid market uncertainty in the marketplace was featured today amid problematic price inflation that could begin to more seriously impact global financial markets. August gold futures were last up $6.20 at $1,819.70. July Comex silver futures were last up $0.461 at $21.42 per ounce.

The US data point of the week saw the Fed’s FOMC meeting that began Tuesday morning and end Wednesday afternoon the Fed is raising US interest rates by 0.75%. Markets showed little reaction to the more aggressive move by the FOMC, as it was not unexpected.

Mid-week, an emergency meeting has been held by the European Central Bank. The governing council discussed current market conditions. The worry for policymakers is the rapid repricing of Eurozone financial assets since last week’s scheduled ECB meeting, which indicated an interest rate hike in July.

Italy, Spain and Greece have seen their government bond yields spike, as those are the weaker economies in the Eurozone. The marketplace is a bit spooked that dislocations in European bond markets could spread into a contagion. That’s bullish for the safe-haven gold and silver markets.

Gold price has made little of a reaction to what was a well-telegraphed rate hike by the Fed on Wednesday. The US central bank has raised the benchmark interest rate by 75bps so to leave the target range standing at 1.50% – 1.75% in line with some earlier expectations that have been published since Monday and as a result, there has been a reaction in financial markets so far following plenty of positioning and volatility ahead of the Fed’s decision.

The lift was the biggest hike since 1994 and the statement signals that there will be more o the same to come in the foreseeable future.

US rate futures price in 93.4% chance of 75 bps hike in July; 55% probability of 50 bps rise in September after Fed decision. The US dollar and front-end yields are bid following the decision and statement. Now markets await more insight into Powell’s comments.
It took only a few days for markets to completely price in a 75-basis point hike and that could be good for gold, according to one international bank. According to the CME’s FedWatch Tool markets saw nearly a 100% chance that the Federal Reserve to raise interest rates by 75 basis points later during the US session and this is what exactly happened.

Markets turned significantly hawkish Monday and Tuesday, for two successive days, as investors continued to digest last week’s inflation data, which hit a new 40-year high at 8.6%. However, according to some analysts, gold’s technical bounce from Tuesday’s low could be a sign that some investors are starting to question market expectations.

August gold futures are holding near session highs last trading at $1,830.60 per ounce, up almost 1% on the day. In a research note published Wednesday, Commerzbank said that because market expectations are so high, gold prices could regain its recent losses if the US central bank sticks to its forward guidance and raises interest rates.

Looking at the gold market, commodity analysts have warned that if the Fed does follow through with a 75-basis point move, prices could drop below $1,800 per ounce.

However, analysts also note that gold still remains in a healthy long-term uptrend and even as the Federal Reserve is looking to aggressively raise interest rates, they are not going to risk pushing the economy into a recession.