Gold, metals see quick rebound after US Fed increases policy rates by 0.25%

Gold and metal prices saw a quick rebound after the US Federal Reserve raised its policy rate on Wednesday by 0.25 per cent, also signalling two or three more increases to follow this year, of a similar magnitude, plus three more next year.

On Thursday, copper was trading higher on the London metal Exchange at $6,830 a tonne. Its recent three-month low was $6,702 a tonne. All base metals prices went up. Gold went below $1,315 an ounce on Wednesday but recovered to $1,330 an oz right after the Fed announcement.

On the Multi Commodity Exchange, copper, aluminium and nickel futures were up but the rise was capped by a marginally stronger rupee. Standard gold in Mumbai was up 0.7 per cent to close at Rs 30,525 per 10g. Silver closed 1.25 per cent higher at Rs 38,480 a kg.

The Fed's rate raising, plus optimism on higher growth with lower unemployment and a possible increase in inflation, has led to higher demand for metals and gold. Thiagarajan Gnanasekar, head of Commtrendz Risk Management Services, said: "Gold tends to do well in inflationary times. Two hikes or three reaffirms inflation. Also, when rates are rising, risky assets like equities are not expected to do well, which could see further movement into gold."

Though it seems gold prices have bottomed, Micaella Feldstein, analyst at Natixis Commodity Research, said it had crossed $1,322, a technical threshold. "We favour a larger rally in the next few days but only a break of the $1,335-1,337 barriers would add weight to this bullish view." Natixis says support for gold exists at $1,307-1,309 and the next important resistance will be at $1,356 an oz.

Metals are recovering on a macro impact. Kishore Narne, head of commodities & currencies at brokerage Motilal Oswal, said: "Base metals had been under pressure recently on a strong dollar but a less hawkish stance at the Fed meet led to the dollar sliding, supporting base metals. Metals are not moving on individual fundamentals but on macro economic developments. The medium-term trend for base metals is weak."


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