Gold Loses Steam, Copper Sinks Further as Hawkish Fed Boosts Dollar

By Ambar Warrick

Investing.com-- Gold prices capitulated to recent gains, while copper extended losses on Thursday after an interest rate hike and hawkish message from the Federal Reserve boosted the dollar and weighed heavily on metal markets.

Bullion prices initially showed some resilience after the Fed’s decision, bouncing from over two-year lows as investors saw the metal as heavily oversold. But it had since capitulated most of those gains and was trading in a flat-to-low range.

Spot gold fell 0.3% to $1,669.56 an ounce, while gold futures fell slightly to $1,674.45 an ounce by 20:01 ET (00:01 GMT). Both instruments rose around 0.5% on Wednesday.

Metal markets shared a similar degree of volatility as most other asset classes after the Fed raised interest rates by 75 basis points, as expected. But the central bank struck a more hawkish than expected tone on the future path of rates, cementing expectations that U.S. rates will end the year well above 4%.

Fed Chair Jerome Powell said the bank needed to take much more aggressive measures to combat red-hot inflation, and was prepared to put some pressure on the economy and the job market as a result.

Powell’s comments pushed the dollar up 1% to a fresh 20-year high, pressuring most metal prices. Silver and platinum futures lost 0.1% and 0.4%, respectively.

Gold prices have plummeted from highs hit during the initial days of the Russia-Ukraine conflict, as rising U.S. interest rates boosted the dollar and drew capital away from the yellow metal. It has also lost its status as a reliable safe haven, having depreciated despite increasing fears of a coming recession.

Among industrial metals, copper futures fell 0.3% to $3.4260 a pound, after tumbling 2% on Wednesday. The Fed’s hawkish stance is likely to put more pressure on global economic growth, denting demand for the red metal.

Sentiment towards copper was further dented on Wednesday after the CEO of major miner Rio Tinto (ASX:RIO) warned that prices of the red metal were set for short-term weakness due to rising inflation and supply chain disruptions. The red metal also has to contend with weakening economic growth in China, the world’s largest copper importer.

Still, copper prices took some recent support from a strike in Chile’s Escondida, the world’s largest copper mine. The move is eventually expected to tighten supply of the red metal.