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Gold Stabilises Post Rate Hike

Globally, gold hit its lowest since early February, after the Federal Reserve sounded an unexpectedly hawkish note on US interest rates, sparking a surge in Treasury yields and sending the dollar to a 14-year high. Spot gold hit a 10-1/2 month low of $1,132.15 an ounce, and was down 1% at $1,132.70 an ounce in early trade on Thursday.

The US dollar had surged to 102.63 on Thursday - the highest since January 2003 - in response to the rate increase and hawkish statement from the FOMC. The index was recently at 102.27, up 0.02% from Wednesday's close.

The US Federal Reserve raised the federal funds rate by 25 basis points to 0.5%-0.75% - the increase, a first since December 2015, was widely expected in the market. Expectations of further expansion in economic activity and labour market strengthening, as well as a further rise inflation, were reasons cited for the increase.

In US data released on Wednesday that further supported the rate hike were-

  • November core retail sales at 0.2% undershot the forecast 0.4% as did retail sales at 0.1% against expectations of 0.3%.
  • The November PPI bettered expectations at 0.4% while November industrial production fell -0.4% compared to consensus for a 0.2% decline.
  • Yields on ten-year US Treasuries gained by nearly 2.6% in response, and the US dollar appreciated significantly.
  • The nearly 22 tons of outflows from gold ETFs that were reported were the most pronounced on a single day since July 2013.

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