Gold prices experienced a turbulent day, initially surging after the Federal Reserve's decision to keep interest rates unchanged for the fifth consecutive meeting. Spot gold rallied over 1.2% from $4,040 to above $4,081, while U.S. gold futures gained 0.7% to close at $4,065.75 per ounce. This initial rise was fueled by a weaker U.S. dollar and a dip in Treasury yields, which typically make non-yielding assets like gold more attractive to investors. However, as the day progressed, some of these gains were pared back.
The Federal Reserve's decision was not unanimous, with Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan dissenting in favor of a 25-basis-point rate hike. Fed Chair Kevin Warsh described the debate as a "good family fight" but reaffirmed the central bank's commitment to its 2% inflation target. According to Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research, this rare 9-3 vote increases the likelihood of a September rate hike if inflation persists due to factors like tariffs, AI-driven investment, and elevated energy prices.
Despite the initial rally, gold prices edged lower on Thursday, with spot gold declining 0.4% to $4,049.99 an ounce. This pullback was primarily attributed to a stronger U.S. dollar, which remained largely unchanged around 100.9 on the U.S. Dollar Index, and a recovery in benchmark Treasury yields. Investors re-evaluated Chair Warsh's comments, with markets now pricing in a 64% probability of a September rate increase, down from 81% prior to the Fed's announcement. Geopolitical tensions in the Middle East, particularly reports of an Iranian missile attack and U.S. military retaliation, also played a role in boosting safe-haven demand for gold, providing a floor for its price amid the shifting monetary policy outlook.
