Fed Hikes Rates Amid Weakening Gold-Interest Link

The US Federal Reserve has raised interest rates for the first time in over three years. The benchmark policy rate was increased by 25 basis points to a range of 3.75%-4%. This decision is seen as a response to persistent inflation, with Fed Chair Kevin Warsh stating that inflation remains too high and has persisted for too long.

Despite the higher borrowing costs, gold continues to trade near record levels, despite being at its highest levels in years. The traditional relationship between interest rates and gold appears to be weakening, with some analysts suggesting other factors such as sovereign and custody risks are playing a larger role.

The issue of reserve security and diversification has gained attention, particularly among central banks holding physical gold and other reserve assets. New York and London remain major advantages for reserve-asset centres due to their deep financial markets, legal infrastructure, trading efficiency, and longstanding institutional trust.