Gold Bounces Back After Fed Rate Hike

The Federal Reserve raised its policy rate by 25 basis points to 3.75%, 4.00% on September 16, a move that initially sent gold prices plummeting.

But instead of holding its losses, the precious metal staged a sharp recovery, rising more than 2% from its post-Fed low.

The reason for this unexpected turnaround lies in the market's reaction to the rate hike and subsequent changes in key indicators such as the U.S. dollar, Treasury yields, and oil prices.

Ahead of the Fed decision, inflation expectations were high due to a hot August inflation report that came in at 3.4% and surging energy costs caused by the U.S.-Iran war.

Investors had already priced in a 90%+ probability of this hike, so the execution didn't shock Wall Street, and major stock indexes initially held relatively flat before pulling back slightly due to the Fed's ongoing hawkish tone.