Gold Prices Decline after US Federal's Decision to Raise Interest Rate

On Wednesday, gold prices dropped after the U.S. Federal Reserve’s decision to hike interest rates by 50 basis points.

Spot gold was last down 0.30% to $1,80489 per ounce. U.S. gold futures fell 0.50% to $1,816.30

Gold prices had jumped over the key $1,800 per ounce level in the previous session to their highest in more than five months after data showed a smaller-than-expected rise in U.S. consumer prices.

Lower rates tend to boost gold prices because they cut the opportunity cost of holding non-yielding bullion.

“The market is more focused on the end game or the idea that the Fed will be ending its interest rate hike cycle early in 2023. That continues to be the main focus of many of these asset classes, including gold,” High Ridge Futures’ Meger said.

Earlier today, the US Federal Reserve raised interest rates by half a percentage point in its last review for the year, a less radical hike than the previous four consecutive ones of 0.75%.

The US base interest rate, the level the central bank charges commercial lenders for borrowing money, now stands at between 4.25% and 4.5%. These rates are far lower than the rates ordinary people tend to pay on their mortgages or loans, and slightly lower than the rates they recoup on savings, but they have a decisive impact on the interest payments of ordinary people all the same.

The move is seen as a sign that the US economy is recovering from this year's inflationary pressure. Analysts are hopeful it could mean that central banks worldwide might stop raising interest rates in early 2023.