Gold prices experienced a significant decline on Thursday following the Federal Reserve’s indication that U.S. interest rates will remain elevated for an extended period. This prompted investors to significantly lower their price expectations for the precious metal in the coming months.
Gold futures set to expire in December, the most actively traded contract on New York’s Comex, slid by 1%, or nearly $20, to reach $1,948.05 per ounce. This decline reflected traders’ anticipation of considerably lower gold prices in the near future, particularly in light of the heightened rate outlook.
Spot gold had a relatively muted response to the Fed’s announcement, falling by 0.1% to settle at $1,928.12 per ounce by 23:50 ET (03:50 GMT).
Other precious metals also witnessed notable losses, with platinum futures down by 0.6%, while silver experienced a nearly 2% decline.
Fed Anticipates Higher Rates and Fewer Cuts in 2024
The Federal Reserve, as widely expected, decided to maintain interest rates at their current levels during its Wednesday meeting. However, Chair Jerome Powell’s remarks carried a more hawkish tone than what the markets had anticipated. Powell highlighted recent increases in inflation and the resilience of the labor market as factors that provide room for the Fed to keep interest rates elevated. He also suggested the possibility of at least one more rate hike this year.
Powell’s remarks included a forecast that U.S. rates are likely to remain around 5.1% through 2024, with only two potential rate cuts expected next year—fewer than the four that markets had been pricing in.
The Fed underscored the U.S. economy’s resilience and played down the likelihood of a U.S. recession, a scenario that typically diminishes safe-haven demand for gold.
The primary weight on gold in the coming months is expected to be the prospect of higher U.S. rates, as rising rates increase the opportunity cost of investing in non-yielding assets.
Copper Sees Slight Gain, but Down for the Week
In the industrial metals sector, copper prices recorded a modest rise after enduring significant losses earlier in the week. Copper futures saw a 0.2% increase, reaching $3.7453 per pound. However, they were down by 1.5% for the week.
Copper received some support from signs of resilience in the U.S. economy, which could sustain industrial activity and copper demand in the months ahead.
Market attention was also directed toward potential additional stimulus measures from China. The People’s Bank of China (PBOC) stated that it was prepared to implement further monetary support if necessary. However, the PBOC opted to keep its loan prime rates unchanged on Wednesday as it grapples with the delicate balance between fostering economic growth and preventing yuan weakness.
