Gold Surges 2% as Oil, Dollar Retreat Amid Fed Rate Hike

Gold prices climbed 2% on Thursday, recovering from their lowest level in nearly six weeks recorded in the prior session. The advance was driven by declines in both oil prices and the U.S. dollar. Market participants simultaneously weighed the implications of the Federal Reserve’s most recent interest rate decision for the trajectory of U.S. monetary policy.

Price movements across markets

In spot trading, gold gained 2.4% to $4,364.29 per troy ounce. U.S. gold futures for December delivery rose 0.4% to $4,404.80.

Silver jumped 3.9% to $65.44 per ounce in spot trading. Platinum advanced 2.1% to $1,787.68, while palladium rose 2.2% to $1,296.86.

Drivers behind the rally

David Meger, director of metals trading at High Ridge Futures, stated: “Gold prices are inversely correlated with energy prices, given energy’s influence on inflation. As energy prices fall, inflationary pressures ease — supporting the gold market.”

Oil prices declined for a second consecutive day, reaching their lowest point in one week. This followed a reduction in concerns over supply disruptions. Meanwhile, the U.S. dollar retreated from its highest level in seven weeks, making gold — priced in dollars — less expensive for holders of other currencies.

The benchmark 10-year U.S. Treasury yield also fell. Higher Treasury yields typically diminish gold’s appeal, as the metal generates no income, unlike risk-free government bonds.

Fed action and market expectations

The U.S. Federal Reserve raised interest rates on Wednesday. Officials signaled further increases in the months ahead. New Federal Reserve Chair Kevin Warsh joined the unanimous decision, which effectively acknowledged that the administration of President Donald Trump has not yet succeeded in curbing inflation — a development policymakers fear could worsen.

CME Group’s FedWatch tool indicates traders now assign a 51% probability to another U.S. rate hike at the central bank’s October meeting, up from 44% the previous day.

Conflicting forces on gold demand

Although gold serves as an inflation hedge, elevated interest rates reduce its relative attractiveness compared with income-generating assets.

UBS noted in a research note: “Rising fiscal deficits, increasing debt burdens, the anticipated weakness of the U.S. dollar, and our expectation that the Federal Reserve will resume monetary easing next year should support gold, despite near-term volatility.”

Global central bank activity

In the United Kingdom, the Bank of England held interest rates steady on Thursday. In Japan, the central bank is expected to raise rates to their highest level in 31 years on Friday and signal readiness to continue raising borrowing costs.