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Gold pares losses as Fed minutes confirm expectations

Economy May 25, 2022 04:37PM ET
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© Reuters. FILE PHOTO: Gold bullion is displayed at GoldSilver Central's office in Singapore June 19, 2017. REUTERS/Edgar Su

By Ashitha Shivaprasad

(Reuters) - Gold pared some losses on Wednesday after minutes from a Federal Reserve meeting suggested the central bank would stick to raising interest rates by half a percentage point in the June and July meetings.

Spot gold fell 0.7% to $1,853.80 per ounce by 4:15 p.m. ET (2015 GMT), having fallen 1.3% to $1,842.49 earlier in the session. U.S. gold futures settled down around 1% to $1,846.3.

All participants at the Federal Reserve's May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation that threatened to race higher without central bank action, its minutes showed.

Gold pared losses after the minutes were in, yet stayed lower, having been down for most of the day on a stronger dollar.

"While the Fed minutes were broadly in line with market expectations, the Fed did state 50 bps increases would likely be appropriate at the June and July meetings," said Suki Cooper, an analyst at Standard Chartered (OTC:SCBFF). "Market focus is likely to remain on inflation data and signs of cost pressures easing."

Even though gold is often seen as a hedge against inflation, rate hikes erode its appeal as they tend to lift bond yields, raising the opportunity cost of holding zero-yield bullion.

Meanwhile, European Central Bank President Christine Lagarde gained key allies for her plan to raise rates out of negative territory this summer.

Spot silver fell 0.5% to $21.99 per ounce, platinum fell 0.6% to $948.95 and palladium rose 0.1% to $2,008.22.

"Platinum and palladium are being kept in check by the ongoing problems in the automotive industry, which is slowing demand for these precious metals," Commerzbank (ETR:CBKG) analysts said in a note.

Gold pares losses as Fed minutes confirm expectations
 

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Comments (2)
Mart Bab
Rubberduck1973 May 25, 2022 6:49AM ET
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For those not buying gold as a hedge against inflation, i have the following question. What will break first if the FED keeps raising rates: inflation, gold or markets? My answers: markets, then inflation after 2 years and then gold. Ok. Now what will gold do if when market breaks and panic hit markets, in a high inflationary environment? Yes. Gold will explode upwards. Don’t be late. Buy gold now.
Ken Del
Ken Del May 25, 2022 6:49AM ET
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Well said!
Shaheen Hays
Shaheen Hays May 25, 2022 6:49AM ET
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If markets break and lots of people lose money with risings costs due to inflation, who will spend the little disposable income they have left on gold ?
Miriam Morkhul
Miriam Morkhul May 25, 2022 6:49AM ET
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Gold will also explode at the opposite direction. We are at a a cross roads financialy where gold will make it's role known. Right now gold is taking a hit from general liquidation, not dollar strength. Hedge funds are in cash now.
SunilKumar Dixit
SunilKumarDixit May 25, 2022 6:49AM ET
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Good logic. However, shorts seem to be waiting for 1750 and below for cover and eying 1900 re-entry and they are not in rush.
PM Coffee
PM_Coffee May 24, 2022 11:11PM ET
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Gold hasn't come close to a hedge against inflation yet.  Traders are *******it against the dollar which is just a comparison of one currency becoming worthless against another - mainly the Euro.  Once panic ensues, it will skyrocket but right now it is just waiting for the banks to be forced into their massive short covering.
Dale Wyffels
Dale Wyffels May 24, 2022 11:11PM ET
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if it drops im buying
Matt Konopka
Matt Konopka May 24, 2022 11:11PM ET
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Yeah not sure why anyone would sell gold based on DXY index or would want USD yielding .83% interest in the face of 8% inflation. Bonkers
Alan Rice
Alan Rice May 24, 2022 11:11PM ET
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Yeah. The sky is falling. lol
 
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