IGI Logo

Gold rose on Thursday after the U.S. Federal Reserve's first interest rate hike in three years bore no surprises, with gains underpinned by a drop in the dollar and U.S. Treasury yields.

Spot gold advanced 0.8% to $1,942.61 per ounce by 1023 GMT, having gained about 1% earlier in the session. U.S. gold futures rose 1.8% to $1,943.30.

The U.S. central bank on Wednesday raised interest rates by 25 basis points, but the expected hike appears to have failed to ease inflation worries, keeping gold's appeal as an inflation hedge intact.

"It's sell the rumour, buy the fact," as gold moves forward with the bad news priced in, independent analyst Ross Norman said. "Although counter-intuitive as raising rates should be negative for gold, it authenticates the claim that we've got an inflation problem."

Rising U.S. interest rates tend to increase the opportunity cost of holding non-yielding, greenback-priced bullion.

Although the Fed laid out an aggressive plan to push borrowing costs next year, the dollar and yields on 10-year U.S. Treasury notes eased, with investors seemingly having priced in an even stronger rate hike, boosting gold. [USD/] [US/]

The Fed's "meek" response to soaring inflation helped gold, said Brian Lan, managing director at dealer GoldSilver Central. "People will see that it is still good to hold gold because .25% doesn't even rock the boat."

Analysts have also said investors in safe-haven gold will continue to closely track political and economic risks posed by Russia's invasion of Ukraine, which has entered its fourth week.

Meanwhile, "if you had to look at one single thing to encourage you that this bull run has got legs, you'd be looking at ETF flows and that's really positive," Ross Norman said.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.8% to the highest since March 2021 at 1,070.53 tonnes on Wednesday. [GOL/ETF]

Spot silver climbed 1% to $25.31 per ounce, while platinum rose 0.4% to $1,021.64. Palladium added 2.6% to $2,471.57.