Gold eases on firmer dollar as investors digest rate hike by US Fed

By Bharat Gautam

(Reuters) - Gold eased on Thursday, as the dollar recovered to head back towards a 20-year peak, after a large but widely expected interest rate hike by the U.S. Federal Reserve sent the currency lower in the previous session.

Spot gold fell 0.3% to $1,827.60 per ounce by 0546 GMT. U.S. gold futures rose 0.6% to $1,830.60.

The conflicting currents of support from potential safe-haven demand and inflationary hedge buying versus pressure from a higher rate regime are keeping gold prices balanced, said Michael McCarthy, chief strategy officer at Tiger Brokers, Australia.

Higher short-term U.S. rates and bond yields increase the opportunity cost of holding bullion, which yields no interest.

The Fed on Wednesday approved a 75 basis point rate hike, its largest since 1994, to stem a surge in inflation, and flagged a slowing economy.

"Gold has been remarkably range-bound for weeks now (despite major news)... and it's a real head-scratcher for traders at the moment to work out what exactly will drive gold out of this range," McCarthy said, adding, the dollar's overall upward trend presented a cautious outlook for gold.

Asian stocks stumbled and the dollar regained its footing, with the dollar index, which hit a high since 2002 of 105.79 on Wednesday, trading at 105.30. [MKTS/GLOB]

The Fed's announcement drove longer-dated U.S. government bond yields lower and nudged the dollar off the two-decade peak, which took greenback-priced gold as much as 1.9% higher in the previous session. [USD/] [US/]

Key investors with big positions in gold know that the economic outlook is still challenging and still prefer to hold bullion as a safe-haven asset, said Brian Lan, managing director at dealer GoldSilver Central.

Spot silver fell 0.6% to $21.52 per ounce, platinum retreated 1% to $930.22, and palladium dipped 1% to $1,841.61.

 

(Reporting by Bharat Govind Gautam in Bengaluru; Editing by Shailesh Kuber, Subhranshu Sahu and Rashmi Aich)