Gold rises 1% after Fed flags inflation, tones down hawkish bets

Gold is often perceived as a hedge against rising costs

Gold rose more than 1 per cent on Thursday as investors sought cover from soaring inflation, with bullion also extending gains after the US Federal Reserve signalled a relatively less hawkish stance on interest rate hikes.

The Fed on Wednesday raised its benchmark overnight interest rate by 50 basis points, the biggest jump in 22 years, while Chair Powell added the bank was not considering 75-basis-point moves in the future.

Spot gold rose 0.6 per cent to $1,892.34 per ounce by 7:34 pm (IST), having earlier hit its highest level since April 29. US gold futures climbed 1.4 per cent to $1,895.50.

 

"I don't think a whole lot changed in overall Fed policy from yesterday's meeting, but it just gave gold and silver traders an excuse to rally the market after the recent strong selling pressure," said Kitco senior analyst Jim Wycoff.

"The whole scenario in Europe with its energy supplies being constrained having banned some energy imports from Russia, that's leading to instability in the European marketplace, that's prompting safe haven demand for gold, prompting higher inflation in the eurozone," Wycoff added.

Gold's advance came despite gains in the dollar index , which typically hurts appeal for bullion among overseas buyers, and benchmark US 10-year Treasury yields.

But while gold is perceived as an inflation hedge, higher U.S. interest rates and bond yields lift the opportunity cost of holding zero-yield bullion.

"Bond yields will continue rising because of expectations that monetary policy from the Fed and other major central banks will be tightened further ... This is going to hold gold back from going too high in the medium term," said Fawad Razaqzada, market analyst at City Index.