Gold stages slight rebound on bargain hunting after Fed's hawkish tone

By Brijesh Patel

(Reuters) - Gold prices rose on Thursday as investors took advantage of a sharp fall in the previous session to buy the metal after the U.S. Federal Reserve signalled it might raise interest rates sooner than expected.

Spot gold was up 0.6% at $1,822.36 per ounce, as of 0235 GMT.

U.S. gold futures were down 2% at $1,824.70 per ounce.

"Gold was crushed overnight by a more hawkish Fed. It has staged a modest recovery in Asia but the rally looks more like speculative dip buying and fast money short-covering, than a vote of confidence in the yellow metal," said Jeffrey Halley, senior market analyst at OANDA.

 

"The recovery in gold should be approached with caution as we have yet to see how a change in tone from the Fed will fully play out in markets. Gold's daily close below $1,797.50 will signal a deeper correction is in prospect."

The Fed on Wednesday began closing the door on its pandemic-driven monetary policy with 11 out of 18 Fed officials projecting at least two quarter-point interest rate increases for 2023..

Gold is seen as a hedge against inflation, but an increase in rates from the Fed will dull bullion's appeal as it translates into higher opportunity cost of holding it.

Gold prices slipped more than 2.5% on Wednesday to its lowest since May 6 after hawkish comments from Fed officials lifted the dollar to a two-month high, while 10-year U.S. Treasury yields jumped.

"Bargain hunting, safe haven demand and buying the dips emerged as gold fell to $1,804, although the change in Fed's script had benefited the dollar and Treasury yields rather than precious metals in the immediate term," Avtar Sandu, senior commodities manager at Phillip Futures, said in a note.

Elsewhere, silver gained 0.5% to $27.09 per ounce, palladium dropped 1% to $2,770.49, while platinum rose 0.5% to $1,127.49.

 

(Reporting by Brijesh Patel in Bengaluru; Editing by Shailesh Kuber)