Spot gold prices hit record high as Fed signals potential pause

Investing.com -- Gold prices extended recent gains on Thursday, briefly touching a record high after the Federal Reserve hiked interest rates but flagged a more stringent approach to raising rates further amid worsening economic conditions.

Spot gold rose 0.9% to $2,056.24 an ounce in early trade on Thursday, after rising to a record high of $2,080.72 an ounce late-Wednesday. Gold futures rose 1.3% to $2,064.15 an ounce, and were trading just below a 2020 record high of $2,089.20 an ounce.

The yellow metal benefited from increased safe haven demand as Fed Chair Jerome Powell warned that economic growth was cooling, and that credit conditions were likely to tighten further amid growing pressure on U.S. banks.

This was accompanied by an extended rout in U.S. bank stocks, as the collapse of First Republic Bank (NYSE:FRC) earlier this week sparked resurgent fears of a U.S. banking crisis.

Media reports said that regional lender PacWest Bancorp (NASDAQ:PACW) was considering a sale amid worsening market conditions, suggesting that it could be the next domino to fall in the worst U.S. banking collapse since 2008.

Powell also signaled that the Fed was close to hitting peak interest rates, and that the bank will largely adopt a more data-driven, “meeting-by-meeting” approach to future rate decisions. The Fed hiked rates by 25 basis points on Wednesday, putting them at their highest level in 16 years.

While this could yet result in more rate hikes, given that U.S. inflation is still trending well above the Fed’s target range, analysts opined that worsening economic conditions in the country will elicit a pause in the rate hike cycle.

“With lending conditions rapidly tightening in the wake of recent bank stresses, we think this will mark the peak for interest rates with recessionary forces set to prompt interest rate cuts later this year,” analysts at ING wrote in a note.

A pause in future rate hikes and a potential U.S. recession present a bullish case for gold, as investors seek safe haven in the yellow metal. The dollar also retreated after the Fed’s statement, as did U.S. Treasury yields.

Other precious metals also advanced on Thursday. Silver futures jumped 1.5%, while platinum futures added 0.4%.

Among industrial metals, copper prices saw some relief from a weaker dollar. But they were trading lower for the week amid growing fears that worsening economic growth will greatly crimp demand for the red metal.

Copper futures rose 0.2% to $3.8563 a pound. A Reuters poll showed that the red metal could be due for some gains in the coming months, but weak economic conditions, particularly in China, could limit any major upside.