Gold prices dip as Fed pauses but flags future hikes

Investing.com -- Gold prices fell on Thursday tracking mixed signals from the Federal Reserve, after the central bank kept rates steady but warned that it will likely hike at least two more times this year.

The yellow metal saw little support even as the dollar sank to three-week lows after the Fed decision, with the prospect of more rate hikes keeping traders largely wary of non-yielding assets.

While Wednesday’s decision marks the first time the bank has held rates steady since embarking on a rate hike cycle in 2022, the Fed also increased its benchmark rate forecast to a peak rate of 5.6% in 2023, up from a prior forecast of 5.1% - suggesting at least two more 25 basis point hikes. 

Spot gold fell 0.2% to $1,939.01 an ounce, while gold futures fell 0.2% to $1,950.87 an ounce by 20:56 ET (00:56 GMT). The yellow metal reversed most intraday gains and settled flat on Wednesday following the Fed’s decision. 

Gold longs disappointed by hawkish Fed outlook 

While markets had widely expected the Fed to keep rates on hold, the forecast of at least two more hikes threw a curveball for traders anticipating an extended pause in the bank’s rate hike cycle.

Gold in particular was expected to benefit from the prospect of U.S. interest rates remaining static for the remainder of the year, given that higher rates push up the opportunity cost of holding gold.

But the prospect of future rate hikes may dent the yellow metal’s appeal, even as global economic conditions deteriorate and demand for safe havens increases.

Gold has stuck to a tight trading range for nearly a month amid uncertainty over the Fed, and is now likely to stay within that range in the near-term amid a dearth of strong cues for movement. 

Hawkish signals from the Fed saw markets completely write off expectations for any rate cuts by the central bank this year - a scenario that bodes poorly for metal markets.

Copper falls, more China rate cuts awaited 

Among industrial metals, copper prices crept lower after the Fed decision, although markets were now awaiting more cues on major importer China.

Copper futures fell 0.4% to $3.8448 a pound. The red metal rallied sharply earlier this week after the People’s Bank of China cut a short-term interest rate to support local economic growth.

Markets now expect the PBOC to enact more rate cuts as it moves to spruce up a slowing economic rebound in China. More stimulus in the country is expected to drive up economic activity and fuel copper demand later this year.