LONDON: Gold prices rose more than 1% on Thursday, a day after Federal Reserve Chair Jerome Powell allayed investor fears that the US central bank might embrace bigger interest rate hikes to rein in soaring inflation.
As expected, the Fed on Wednesday raised its benchmark overnight interest rate by 50 basis points, the biggest jump in 22 years. However, Powell told reporters afterwards it was not considering 75-basis-point moves in the future.
Spot gold was up 1.1% to $1,901.30 per ounce by 8:21 a.m. EDT (1221 GMT), having earlier hit its highest level since April 29. US gold futures climbed 1.7% to $1,899.60.
Nitesh Shah, a WisdomTree analyst, said gold was getting some support from concerns that the Fed might tighten too much, triggering a recession and boosting the appeal of bullion as a defensive asset.
While gold is perceived as an inflation hedge, higher US interest rates and bond yields lift the opportunity cost of holding zero-yield bullion, while boosting the dollar in which the precious metal is priced.
“We are also seeing the prospect of living with inflation for longer ... That’s why gold is defying both the rise in 10-year yields and the gain in the dollar that we’ve seen,” Shah added.
The dollar index rose 0.7% on Thursday, while benchmark US 10-year Treasury yields crawled higher towards a multi-year high.
“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.
The Bank of England raised interest rates to their highest level since 2009 but warned that the economy was at risk of recession.
Spot silver rose 0.3% to $23.02 per ounce, while platinum fell 0.6% to $985.46 and palladium dipped 0.2% to $2,251.14.