India — Gold prices rebounded by more than 1% on Thursday as investors reassessed their positions after the Federal Reserve’s latest interest-rate increase. A weaker U.S. dollar and falling oil prices also provided support for the precious metal.
Spot gold rose 1.2% to $4,312.05 an ounce as of 0848 GMT. The metal had dropped to a nearly six-week low on Wednesday before recovering during the following session. U.S. gold futures for December delivery fell 0.8% to $4,351.
The rebound followed the Federal Reserve’s decision on Wednesday to raise interest rates and signal that additional increases could be required in the coming months. The move led investors to reconsider trades established ahead of the decision based on expectations of a rate increase.
Independent analyst Ross Norman said some traders may have built up overly large positions before the announcement and were subsequently unwinding those trades once the anticipated increase became reality.
The dollar also declined after reaching a seven-week high. Since gold is priced in dollars, a weaker U.S. currency can reduce the cost of bullion for buyers using other currencies, potentially supporting demand.
Oil prices continued to fall as concerns over supply disruptions diminished. Lower energy costs can affect gold markets by easing some inflationary pressures and influencing expectations for future monetary policy.
Gold generally comes under pressure when interest rates rise because higher yields can make interest-bearing investments more appealing compared with bullion, which does not generate interest. At the same time, ongoing geopolitical uncertainty can maintain demand for gold as a hedge.
Investors were also monitoring decisions from other major central banks. The Bank of England was expected to keep interest rates unchanged on Thursday, while the Bank of Japan was expected to consider raising rates on Friday.
Linh Tran, an analyst at XS.com, said the Federal Reserve was tightening monetary policy while inflation was being driven significantly by energy prices and supply disruptions. Under those circumstances, higher interest rates could slow economic growth without immediately removing all inflationary pressures.
Other precious metals also posted gains. Spot silver rose 1.4% to $63.83 an ounce, platinum advanced 1.2% to $1,772.19, and palladium climbed 1.8% to $1,291.89.
Gold investors are now weighing the opposing effects of higher interest rates, which can pressure bullion, and continuing geopolitical and economic uncertainty, which can encourage demand for the metal.
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