Gold climbs over 1% after Fed signals end of rate hikes

By Ashitha Shivaprasad and Sherin Elizabeth Varghese

(Reuters) – Gold prices rose more than 1% on Wednesday after the U.S. Federal Reserve flagged an end to its interest rate hike cycle and indicated possible rate cuts next year.

Spot gold gained 1.3% to $2,004.79 per ounce as of 2:34 p.m. ET (1934 GMT). U.S. gold futures settled 0.2% higher at $1,997.30.

The U.S. central bank held interest rates steady on Wednesday. A near unanimous 17 of 19 Fed officials project the policy rate will be lower by the end of 2024 than it is now, with the median projection showing the rate falling three-quarters of a percentage point from the current 5.25%-5.50%.

“The Fed’s acknowledgement of inflationary pressures continuing to come down has raised interest rate cut expectations, which is seeing a dramatic drop in yields and dollar, and a subsequent rise in gold and silver,” said David Meger, director of metals trading at High Ridge Futures.

“We believe the current upward move in gold is a sustained rally.”

The dollar index slipped 0.6% after the Fed verdict, making gold less expensive for overseas buyers. U.S. 10-year Treasury yields extended its retreat. [USD/] [US/]

Traders are now pricing in a near 60% chance of U.S. rate cuts in March 2024, according to the CME Fedwatch tool.

Lower interest rates increase the appeal of holding zero-yield bullion.

Fed Chair Jerome Powell said inflation has eased without significant rise in unemployment and that full effects of tightening is likely not yet felt.

Data showed U.S. producer prices were unexpectedly unchanged in November, indicating inflation at the factory gate continued to subside.

Gold’s trajectory could also be influenced by policy meetings of the European Central Bank and the Bank of England on Thursday.

Silver rose 2.5% to $23.32 per ounce, while platinum rose 0.1% to $930.56, and palladium was up 0.5% to $983.83.

(Reporting by Ashitha Shivaprasad and Sherin Varghese Elizabeth in Bengaluru)