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Gold plunges as Fed raises rates

The Fed became the first to raise interest rates after a period of unprecedented monetary easing.

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Gold, after a slow response on Wednesday, dropped US$18 or 1.7% to US$1,054 on Thursday.

Gold slipped back on Thursday in the aftermath of the Federal Reserve’s decision to raise interest rates.

The Fed became the first to raise interest rates after a period of unprecedented monetary easing.

The US central bank delivered its first interest rate hike since 2006, raising interest rates by 0.25% from the 0% level seen over the last seven years as it now sees the market conditions right for a hike in the economy.

The vote in favour of the change on the Federal Open Market Committee (FOMC) was 10-0.

Lukman Otunuga, FXTM Research Analyst, said: “Investor attraction towards gold diminished rapidly when the Federal Reserve decided to raise US interest rates for the first time in almost a decade.”

“This commodity has been a victim to heavy depreciations from the rising optimism around a December US rate rise, and now this has become a reality, any hope for a recovery in prices before the end of the year has promptly faded,” he added.

The gold price, after a slow response on Wednesday, dropped US$18 or 1.7% to US$1,054 on Thursday.

But not everyone is quite so down on the metal, with Yuen Low, at Shore Capital, saying: “A rising interest rate environment (and implicitly, a strengthening dollar) is generally negative for metal prices but we believe that any resulting negative sentiment is likely to be tempered by the Fed’s emphasising a gentle gradient for the road ahead.”

“We believe it particularly noteworthy that the Fed is expecting “only gradual increases in the federal funds rate” (our emphasis), and that rates are “likely to remain, for some time, below levels that are expected to prevail in the longer run” (i.e. relatively low).”

Elsewhere, silver lost almost 3% to US$13.76 while platinum dropped US$23 to US$850.

 

Major Movers

Randgold Resources down 106p to 4,017p

Fresnillo down 17p to 656p

Anglo American down 15p to 263p

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