Gold prices pared gains and traded flat at $4,315 per ounce on Wednesday, halting a four-session rally. This occurred after the Federal Reserve kept interest rates unchanged, as widely expected, but indicated the possibility of a rate hike later this year. Half of the FOMC members projected that a rate increase might be necessary due to expectations of higher-than-anticipated core inflation stemming from the impacts of the Middle East conflict.
The precious metal's decline was also attributed to a surge in shorter-term Treasury yields, which increased the opportunity cost of holding non-interest-bearing bullion compared to interest-bearing securities. Adding to the downward pressure on gold, safe-haven demand decreased as both the U.S. and Iran maintained their intention to sign an agreement to suspend hostilities and restore energy trade on Friday. This peace initiative, following a preliminary deal announced over the weekend, eased broader market concerns.
Initially, gold had seen gains driven by a preliminary U.S.-Iran peace deal and reduced expectations of a Fed rate hike. Spot gold was trading at $4,341.12 an ounce earlier, with U.S. Gold Futures for August Delivery rising by 0.2% to $4361.10. However, the Fed's announcement shifted sentiment, causing spot gold to fall 0.7% to $4,299.89 an ounce by 2:40 pm EDT (1840 GMT), although U.S. Gold Futures closed 0.6% higher at $4,381.40.
Nine out of nineteen policymakers at the U.S. central bank believe they will have to increase the policy rate this year. The Fed maintained its policy rate within its current range of 3.50% to 3.75%. Prior to the Fed's decision, market participants were pricing in roughly a 60% probability of a 25 basis point Fed rate hike in December, a figure that had decreased from 70% last week following the U.S.-Iran peace agreement. Investors were closely watching new Fed Chair Kevin Warsh's first press conference for guidance, particularly his stance on inflation.
