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Wednesday, December 6, 2023

The Fed Hiked Rates — What Happened to the Gold Price?

After an impressive jump to nearly US$2,030 per ounce at 1:20 p.m. EST, the price of gold receded on Wednesday (May 3) following the decision by the US Federal Reserve to increase rates by 25 basis points in its May meeting.

In a unanimous decision, the Fed raised the US central bank’s benchmark overnight interest rate to a 5 percent to 5.25 percent range. This represents the tenth consecutive increase by the Fed.

The regulators are now indicating they will closely monitor inflation risks and are encouraged by job gains in the past month.

Will the Fed hike rates again?

In a press conference following the release of the new decision, Fed Chair Jerome Powell said the committee will monitor future events as they relate to its future decisions.

“In light of these uncertain headwinds along with monetary policy restraint we’ve put in place, our future policy actions will depend on how events unfold.

“In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” he said.

Following a steep climb reaching nearly US$2,030 price point in value shortly before the announcement by the Fed, gold’s price per ounce began lowering during the day.

Gold finished the trading session at a price per ounce of US$2015.98.

When asked if the market and investors should read today’s decision as meaning the Fed will pause a rate hike for its next meeting, Powell said a “decision of a pause was not made today.”

Instead, the chair once again stressed that the committee will monitor future events to make its decisions.

In previous statements, the Fed had indicated it would continue to anticipate the use of rate increases as a way to combat inflation. While experts begin to ponder as to the next steps for the Fed, signs are pointing to a relief in future rate hikes.

However, the Fed still noted inflation remains “elevated.”

“What’s most important is how they convey the potential for a pause going forward,” Collin Martin, fixed income strategist at Charles Schwab, told CNBC. “How do they do that while also probably leaving the door open a little bit? That will be a balancing act between suggesting a pause is in the cards but still is dependent on incoming data should inflation turn higher going forward.”

Fed comments on ongoing banking crisis

Chair Powell opened his press conference with a bank update following the recent bank crisis in the US.

Powell said following a review of the events relating to the Silicon Valley Bank (SVB) crisis, there’s work that needs to be done by the Fed to prevent events like this in the future.

The review, led by Vice Chair for Supervision Michael S. Barr, reproached the Fed’s lack of both action and understanding of the full extent of vulnerabilities attached to SVB.

“I agree with and support his recommendations to address our rules and supervisory practices, and I am confident they will lead to a stronger and more resilient banking system,” Powell said in a statement.

When asked about whether the potential for bank M&A could increase or decrease stability in the bank market, Powell said having various sizes of banks is a positive and great system overall.

Powell said the purchase of First Republic bank’s assets by JP Morgan was overall a positive, even though policy dictates it probably isn’t the best for the biggest banks to get even bigger.

​Investor takeaway

The next steps for the Fed will be closely monitored as Chair Powell wouldn’t commit as to what’s ahead for the regulators. However, as expectations continue to rise for a pause in rate hikes, investors will have to monitor the impact of the upcoming financial events and how they could dictate what the Fed will likely do next.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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