Fed Rate Hike Cools Gold and Silver Rally
The Federal Reserve's decision to raise interest rates has had a mixed impact on gold and silver prices. While gold edged higher, benefiting from lower oil prices and easing near-term inflation fears, the Fed's more hawkish tone leaves the outlook for the U.S. dollar and global economy less supportive of investments in precious metals.
The Fed lifted its policy rate by 25 basis points to a range of 3.75%-4.00%, marking the first increase since 2018. The median Federal funds rate target was increased to 4.0% from 3.5% by 2023, and a stronger consensus emerged among FOMC members for another 25 bps hike this year.
A more hawkish communicated policy is likely to continue to limit the upside for precious metals, with a stronger dollar placing downward pressure on gold prices. However, tensions between the West and Iran have driven investors to the safety of gold, and some analysts believe that a fourth rate hike this year is priced-in at a 50% probability.
Gold technical analysis suggests that while the short-term outlook has improved, the larger trend remains bearish. The initial target for the upside is $4,354, with further targets at $4,403 and $4,434 if bulls break above this level. However, if the $4,283 support holds, the next downside target would be the $4,256 support.