Gold prices continued to soar on Thursday, briefly reaching an all-time high after the Federal Reserve raised interest rates but cautioned about a more stringent approach to future rate hikes in light of the worsening economic situation.
The spot gold price rose 0.9% to $2,056.24 per ounce in early trade on Thursday, after reaching a record high of $2,080.72 per ounce the previous night.
Meanwhile, gold futures jumped 1.3% to $2,064.15 per ounce, staying just below a 2020 record of $2,089.20 per ounce.
The increase in gold prices was fueled by a surge in demand for safe-haven assets following the Fed Chair Jerome Powell’s warning of cooling economic growth and tightening credit conditions due to increased pressure on US banks.
The announcement was accompanied by a slump in US bank stocks after First Republic Bank’s collapse triggered fears of a US banking crisis. Reports emerged that regional lender PacWest Bancorp was considering a sale amidst deteriorating market conditions, indicating that it could be the next domino to fall in the worst US banking collapse since 2008.
Powell also indicated that the Fed was nearing the peak interest rates and would adopt a data-driven, “meeting-by-meeting” approach to future rate decisions. Although there could still be more rate hikes given that US inflation is trending above the Fed’s target range, analysts believe that worsening economic conditions in the US will lead to a pause in the rate hike cycle.
ING analysts wrote, “With lending conditions rapidly tightening in the wake of recent bank stresses, we think this will mark the peak for interest rates with recessionary forces set to prompt interest rate cuts later this year.”
The likelihood of a pause in future rate hikes and a potential US recession creates a bullish outlook for gold, as investors seek safe haven in the precious metal. The dollar and US Treasury yields also declined after the Fed’s announcement.
Other precious metals like silver and platinum also experienced gains on Thursday, with silver futures rising 1.5% and platinum futures adding 0.4%. However, copper futures remained lower for the week due to concerns that worsening economic growth could significantly reduce demand for the metal.
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