Gold sinks while dollar surges after Fed’s rate projections

Gold prices extended losses on September 18, as the dollar firmed after the US Federal Reserve cut interest rates by an expected quarter of a percentage point and adopted a measured rhetoric on further policy easing.

Spot gold dipped 0.6 per cent to $3,637.41 per ounce, as of 0636 GMT, after hitting a record high of $3,707.40 on Wednesday.

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US gold futures for December delivery slipped 1.2 per cent to $3,671.30.

“The general message from the Fed was slightly to the hawkish side on interest rates, they didn’t really enthusiastically endorse lower rates,” said Marex analyst Edward Meir.

“As a result, we saw the dollar firm up after the Fed meeting and the Treasury rates also moved higher… I think over the short term, we are probably a little bit overbought here and we could retrace a bit further maybe to the $3,600 mark.”

The dollar rose 0.4 per cent to extend gains against its rivals, making gold more expensive for other currency holders.

The Fed reduced rates by 25 basis points on Wednesday and indicated it will steadily lower borrowing costs for the rest of this year.

Fed Chair Jerome Powell characterised the policy action as a risk-management cut in response to the weakening labour market and the central bank is in a “meeting-by-meeting situation” regarding the outlook for interest rates.

Traders are currently pricing in a 90 per cent chance of another 25-bp cut at the Fed’s next meeting in October, compared with a 74.3 per cent probability a day earlier, according to the CME Group’s FedWatch tool.

The Bank of England will announce its own policy decision later on Thursday, and is widely anticipated to keep rates at 4 per cent.

Meanwhile, SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.44 per cent to 975.66 tonnes on Wednesday from 979.95 tonnes on Tuesday.