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Gold price falls as sterling drops below $1.40

Investors rush to sell gold as Fed adopts a more hawkish tone

Gold prices have dropped £37.09, or 2.8%, on Thursday on the release of the Federal Reserve’s interest rate statement. 

At the time of writing the price of gold now stands at £1,280.58.

Following Jerome Powell’s statements about inflation, the US central bank’s dot plot and tapering plans, the spot price of gold came under selling pressure.

As the Fed adopted a more hawkish tone, investors took to the markets to sell of their holdings in the precious metal.

While investors reacted to the 1.58% rise in US treasury yields, they will be keeping a close eye on the attitude of the Fed toward inflation moving forward.

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“Gold was crushed overnight by a more hawkish Fed. It has staged a modest recovery in Asia, but the rally looks more like speculative dip buying and fast money short-covering, than a vote of confidence in the yellow metal,” Jeffrey Halley, a senior market analyst at OANDA, told Reuters.

“The recovery in gold should be approached with caution as we have yet to see how a change in tone from the Fed will fully play out in markets. Gold’s daily close below $1,797.50 will signal a deeper correction is in prospect.”

Silver was flat at $26.97 per ounce, while palladium fell 1% to $2,770.72 and platinum held steady at $1,122.

Sterling

Sterling dipped below $1.40 and reached a 10-week high against the euro on Thursday in the aftermath of the shift in tone by the Fed.

On Thursday the UK currency has mostly traded sideways at $1.39840.

Lee Hardman, currency economist at MUFG, said the relative strength of the pound could be because the Bank of England is likely to follow America’s lead at a quicker pace than the ECB.

“It’s a reflection of the view that the Bank of England is likely to be one of the first central banks to raise rates as well. If the Fed is willing that could give the Bank of England confidence to move earlier,” Hardman said.

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