(Bloomberg) — Gold fell after Federal Reserve officials left interest rates unchanged while signaling the possibility of higher rates later this year as the central bank gauges the inflation effects of the Iran conflict.
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Bullion declined as much as 2.6% as policymakers’ new projections indicated nine officials foresee at least one quarter-point hike this year, with six anticipating at least two. Another nine expected no move or a cut.
In its first gathering under Fed Chairmain Kevin Warsh’s leadership, the Federal Open Market Committee voted unanimously Wednesday to hold its benchmark federal funds rate in a range of 3.5% to 3.75%. Treasuries sold off, the dollar rallied and stocks fell after the decision was announced.
The decision marked the fourth straight time officials held rates in place as they continue to shift their concerns from the labor market to inflation, driven in part by the impact of the Iran war on energy prices. In their post-meeting statement, officials said inflation remained elevated and vowed to deliver price stability.
Traders have now fully priced in a rate hike in the coming months as the Fed focuses on price stability over employment. Higher rates are typically negative for the precious metal as it pays no interest. The FOMC statement also removed the reference to additional rate adjustments, seen as a hawkish stance on monetary policy.
“Super and unexpectedly hawkish FOMC dot plot makes this recent gold rally from $4,000 look more like a tactical dead cat bounce than a structural reversal,” said Nicky Shiels, head of metals strategy at MKS Pamp SA. The fact that half the committee are penciling in a 2026 rate hike isn’t what the market expected, she added.
“They are indicating they are not at neutral and they will favor price stability over unemployment,” Shiels said. “The Fed is now a vigilant hawk, which creates additional headwinds for gold and the sidelined investor base.”
Gold rebounded this week after an interim US-Iran deal was announced over the weekend. The possibility of reopening the Strait of Hormuz would alleviate an energy crunch that has sent inflation soaring and prompted many central banks to keep rates on hold or even hike them, a headwind for non-yielding bullion. The precious metal is down 20% since the war began in late February.
At his first press conference as Fed Chair, Warsh ruled out re-examining the Fed’s 2% inflation target.
“I see no reason, until we have reestablished our commitment and ability to deliver on the 2% inflation objective, to revisit that,” he said.
Policymakers made several adjustments to the economic forecasts they issued in March, soon after the Middle East conflict began. Their median forecast for inflation this year jumped to 3.6% from 2.7%. Their forecast for 2026 core inflation, which excludes volatile food and energy categories, increased as well to 3.3% from 2.7%.
Gold fell 2.5% to $4,224.17 an ounce as of 3:38 p.m. in New York. Silver declined 4.1% to trade below $68. Platinum and palladium declined. The Bloomberg Dollar Spot Index rose 0.8%.
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