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Fed hawkishness supports the dollar while gold and copper lose steam

Skylar Williams

Sep 22, 2022 11:41


After a Fed rate hike and hawkish posture bolstered the dollar and harmed metal markets, gold prices reversed recent gains and copper prices extended losses on Thursday.

As traders thought the metal to be oversold, bullion prices initially rose after the Fed's pronouncement. Since then, it has lost the majority of its gains and is trading between flat and low.

Gold spot prices dipped 0.3% to $1,669.56 and gold futures declined to $1,674.45 around 20:01 E.T. (00:01 GMT). Both increased by 0.5% on Wednesday.

As anticipated, after the Fed increased interest rates by 75 basis points, metal markets were volatile. The central bank sounded more hawkish than anticipated for future interest rates, reaffirming predictions that U.S. interest rates will end the year over 4%.

Chairman of the Federal Reserve Jerome Powell stated that the bank must adopt more aggressive tactics to combat inflation and was willing to exert pressure on the economy and labor market.

The dollar increased by 1% as a result of Powell's remarks, reducing metal prices. Platinum prices decreased 0.4% and silver futures decreased 0.1%.

During the Russia-Ukraine crisis, rising U.S. interest rates strengthened the ruble and diverted capital away from gold. It lost its role as a safe haven as fears of a recession increased.

Copper futures fell 0.3% to $3.4260 a pound, following a 2% decline on Wednesday. The Fed's aggressive stance may hinder global economic growth, hence decreasing gold demand.

The CEO of Rio Tinto warned that growing inflation and supply chain disruptions will have an immediate negative impact on copper pricing. China, the largest copper importer in the world, is also slowing.

A strike at the world's largest copper mine, Escondida, in Chile increased copper prices. The action could diminish copper supplies.