Gold crosses $1,950 as dollar sinks on Fed intent to continue rate hikes

By Barani Krishnan

Investing.com - Gold smashed past the $1,950 resistance the first time in almost a year as the dollar sank after the Federal Reserve said it was not done with rate hikes in order to get the U.S. economy to what it called a “restrictive stance” to fight inflation.

“The inflation data received over the past three months show a welcome reduction in the monthly pace of increases,” Fed Chair Jerome Powell told a news conference on Wednesday. “While recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.”

Just before Powell’s news conference, the Fed announced a 25-basis point rate hike for February, its smallest in almost a year, as inflation cooled in recent months.

Inflation , as measured by the Consumer Price Index, rose by 6.5% in the 12 months to December — at least three times above the Fed’s 2% per annum target. Still, that was markedly lower than its 9.1% annual growth in June, when inflation was bumped up to four-decade highs from trillions of dollars of relief spending during the pandemic. Since March 2020, the Fed has added 425 basis points to rates, which stood at just 25 basis points just after the Covid-19 outbreak.

Continuous rate hikes by the Federal Reserve will likely weigh on the dollar, pushing up safe-havens that include. The Dollar Index fell almost 1% on Wednesday on Powell’s comments, extending its 9% loss over between the close of September and end of January.

Gold for April delivery on New York’s Comex settled Wednesday’s trade down $2.50 at $1,942.80 an ounce. But after Powell spoke, the benchmark gold futures contract soared to $1,969.05 — its highest since April last year.

The spot price of gold, more closely followed than futures by some traders, was at $1,949.82 an ounce 15:52 ET (20:52 GMT) after a peak at $1,952.85.

The $1,950 resistance had been viewed as a critical barrier for gold to break if the precious metal were to advance to the virtual record high of $2,078 attained in April last year. Since the start of 2023, gold futures have gained almost 8%, while spot gold has risen nearly 7%.