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Metals Stocks: Gold prices end higher, extend gains after the Fed lifts interest rates as expected

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Gold prices finished a bit higher Wednesday on the heels of a two-session decline, then extended their gains into the electronic trading session after the Federal Reserve ‘s decision to lift interest rates, as expected.

Price action

Gold
GC00,
+0.89%

GCQ22,
+0.89%

for August delivery rose $1.40, or nearly 0.1%, to settle at $1,719.10 an ounce. Prices edged up to $1,723 in electronic trade, shortly after the Fed’s policy announcement.

Silver
SIU22,
+2.67%

SI00,
+2.67%

for September delivery settled at $18.60 an ounce, up 7 cents, or nearly 0.4%.

Palladium prices for September
PAU22,
+0.51%

fell $6.80, or 0.3%, to $2,004.40 an ounce, while platinum prices
PLV22,
+1.82%

for October delivery gained $12.80, or 1.5%, to $877.20 an ounce.

September copper
HGU22,
+2.47%

advanced by a nickel, or 1.3%, to $3.43 per pound.

What analysts are saying

Gold futures ended with a modest gain, then moved up further in the immediate aftermath of the U.S. central bank’s monetary policy decision Wednesday afternoon.

Gold and silver “clearly had today’s rate rise priced in, trading pretty much flat in a tight range before and after the statement,” Adrian Ash, director of research at BullionVault, told MarketWatch.

The Federal Open Market Committee announced on Wednesday an increase in its benchmark short-term interest rate of 75 basis points, raising the federal funds rate to a range of 2.25% and 2.5%.

“But now the big questions come from the bond market, because inflation above 9% and 2-year yields falling back towards 3% show just how confused the outlook has become,” Ash said. “Short of a collapse in inflation forecasts, such severe uncertainty will likely support, if not boost investment flows into the monetary precious metals.”

While the Fed stated that further rate increases would be appropriate, “it is unclear how much higher and what speed the Fed will progress,” said Jeff Klearman, Portfolio Manager at GraniteShares, which runs the GraniteShares Gold Trust
BAR,
+0.94%
.
 

“As a result, the 10-year Treasury rate moved lower, falling to 2.75%, almost 50bps lower than 1 month ago,” he said but more importantly, the 10-year real yields moved lower, too, falling to below 40 basis points after reaching levels of over 80bps in mid-June.

“The fall in real rates seems to indicate investors believe the Fed will likely need to reduce rates sooner than expected to combat slow growth or even recession,” said Klearman. And “while 10-year inflation expectations have fallen from their highs as well, the persistence of high energy prices…increase the possibility of continued elevated levels of inflation, even with slower domestic and global economic growth.”

“Both these factors — lower real rates and elevated levels of inflation — are supportive of gold prices,” he said.

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