Gold advances after US Fed keeps interest rates on hold

[SINGAPORE] Gold rose after the US Federal Reserve kept interest rates unchanged, despite rising inflationary risks stemming from the war in the Middle East.

Bullion climbed as much as 0.8 per cent to touch the US$4,100 an ounce mark, having gained 0.9 per cent on Wednesday (Jul 29).

The Fed voted nine to three in favour of holding rates, although the fractured vote signalled growing conviction among some policymakers that higher borrowing costs – typically a headwind for non-yielding gold – may be needed later to curb resurgent price pressures.

Fed chairman Kevin Warsh insisted the latest decision was not a sign of inertia at the US central bank.

“If inflation continues to be elevated through the forecast period, interest rates could well be part of that solution, but I wouldn’t say it’s in isolation,” he said.

Gold is down by more than a fifth since the US-Iran war began more than five months ago, with high energy prices stoking inflationary pressures and raising the likelihood that rates will stay higher for longer.

However, the metal has held near the key support level of $4,000 an ounce since late June, bolstered by a wave of dip-buying.

“Overly shorted or disliked asset classes like precious metals and bonds” can expect relief rallies following the Fed’s decision, said Nicky Shiels, head of research and metals strategy at MKS PAMP.

“Conviction is cautiously growing that this is a green light for larger re-engagement to pile into gold,” she wrote in a note, adding that US$4,200 is a “key inflection point”.

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In the Middle East, tensions escalated after US President Donald Trump said the US would strike back in response to a recent Iranian attack on an American military base in Jordan.

The US and Saudi Arabia also struck Teheran-backed militants in Iraq, after Riyadh said it intercepted drones launched by Iraqi groups that were targeting its oil facilities. Oil steadied on Thursday after its biggest daily jump in more than two weeks.

Spot gold rose 0.6 per cent to US$4,091.40 an ounce at 7.50 am in Singapore. Silver jumped 1.1 per cent to US$58.37 an ounce.

Platinum and palladium also advanced. The Bloomberg Dollar Spot Index, a gauge of the US currency, fell 0.1 per cent after dropping 0.3 per cent in the previous session. BLOOMBERG