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Gold shocks as Fed hikes rates by 75 basis points

2022-06-16

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At 2 a.m. Beijing time on June 16, the Federal Reserve raised its benchmark interest rate by 75 basis points to a range of 1.50%-1.75%, the largest rate hike since 1994. The FOMC voted 10-1 to raise rates by 75 basis points and reiterated that continued rate hikes would be appropriate. A rate hike of 75 basis points will not be a normal operation, and the July meeting will raise rates by 50 or 75 basis points.

At 02:38 on June 16, Beijing time, the most active gold futures contract on COMEX, 2,649 lots were traded instantly on the buying and selling board in one minute, with a total value of USD 486 million.

Powell said at a press conference that sharp interest rate hikes would not be normalized to soothe market sentiment, U.S. stocks and U.S. bonds rebounded significantly, and the dollar plummeted and gold soared. Inflation has unexpectedly risen since the Fed's May meeting, Powell said. In response, the Fed decided to sharply raise interest rates. The next meeting is most likely to be 50 basis points or 75 basis points, and the move to raise rates by 75 basis points is not expected to become the norm.

The Dot Plot of the Fed's June Resolution

Gold shocks as Fed hikes rates by 75 basis points

The Fed dot plot values show:

Of the 18 members, 16 expect the federal funds rate range to be at or above 3.50-3.75% by the end of 2023.

Thirteen of the 18 members expect the federal funds rate range to be at or above 3.25-3.5% by the end of 2022.

The Fed's FOMC June dot plot shows that the Fed is expected to start cutting interest rates in 2024, and the median expectations for the federal funds rate by the end of 2022, 2023, and 2024 will rise to 3.4%, 3.8%, and 3.4%, respectively.

Phillip Streible, chief market strategist at BlueLine Futures in Chicago: Gold got a shot in the arm as the dollar and yields fell, especially after Fed Chairman Powell said a 75bps rate hike would not be common, and if inflation flattens, the Fed may not Rate hikes need to be that aggressive.

The U.S. dollar has dominated the gold price trend recently, and the U.S. bond yield rose above 3.45% on Tuesday, setting a new 11-year high. Following the U.S. consumer price index (CPI) that rose to a more than 40-year high in May last Friday, the producer price index (PPI) announced on Tuesday also remained at a high point. The fiery data continued to increase pressure on the Fed, and traders became obliged to face a three-yard rate hike this week.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Gold shocks as Fed hikes rates by 75 basis points

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