Gold rebounded in Asian trading on Thursday, climbing as much as 1.1% to around $4,295 an ounce, after the Federal Reserve delivered its first rate hike in over three years. The move pared earlier gains, with December futures remaining softer near $4,334. The recovery came even as the dollar hit a seven-week high, suggesting the rally is driven by more than just the Fed's decision.
Hawkish Fed, but largely priced in
The Fed unanimously raised its target range by 25 basis points to 3.75%-4%, its first increase since 2023. Updated projections show 16 of 18 policymakers expect at least one more hike this year, with the median forecast pointing to a 4%-4.25% range by December. Typically, higher rates increase the opportunity cost of holding non-yielding assets like gold, but the decision was widely anticipated, limiting the surprise factor.
According to CMC Markets analyst Laurence Booth, gold's resilience also reflects demand outside the US rates trade, including Chinese ETF inflows, a firm domestic Chinese market, and continued central bank buying. This suggests bullion is becoming less dependent on the traditional inverse relationship with US rates.
Oil slide removes a key pressure point
The more supportive development came from energy markets. Brent crude extended its retreat toward $105 a barrel after reports that Saudi Arabia was offering additional cargoes through Oman, easing concerns over disrupted exports following damage to its East-West pipeline. Oil had climbed sharply above $100 earlier in the week as Middle East supply risks intensified.
Lower crude matters because the recent oil surge had reinforced expectations that inflation would remain sticky and forced Treasury yields higher. As that pressure eases, the case for an even more aggressive Fed response becomes less immediate. Analysts noted that softer oil and Treasury yields can improve gold's appeal by reducing inflation-driven rate pressure, although a persistently hawkish Fed would still pose a risk through higher yields.
Dollar strength caps gains
The main obstacle remains the dollar, which reached a seven-week high after the Fed decision as short-term Treasury yields rose and markets increased bets on another rate increase. The two-year yield has climbed to its highest since July 2024, while the 10-year yield hovers just below 5%. A further break higher in long-dated yields could quickly challenge the rebound.
Meanwhile, the Bank of England is due to decide policy on Thursday and is expected to keep rates unchanged despite UK inflation rising to 3.1%. The broader market context remains mixed, with tech-led weakness in equities and bond vigilantes pushing yields higher adding to the complex backdrop for gold investors.
Despite the near-term headwinds, gold's ability to hold above $4,200 suggests that structural demand from central banks and Asian investors is providing a floor. As recent rallies have shown, the metal can surge when Treasury yields and the dollar retreat. For now, traders will watch whether oil's decline continues and whether the Fed's hawkish stance translates into sustained yield pressure.
This article is for informational purposes only and does not constitute financial advice.
