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Gold Firms Following Rate Increase, Fed Signals Pausing of Increases

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After briefly rising to about 1%, gold stabilized on Wednesday as the U.S. Federal Reserve announced a rate rise that had been widely anticipated and indicated a halt in future hikes.

As of 2:19 p.m. EDT (1819 GMT), spot gold was up 0.3% at $2,022.19 per ounce after reaching its highest level since April 14 at $2,036.15 earlier.

Futures for U.S. gold up 0.4% to $2,031.60.

In order to counter the inflationary forces that have maintained price increases far beyond its 2% objective, the Fed increased interest rates by a quarter percentage point.

It also indicated a halt to additional hikes, allowing policymakers time to examine the effects of recent bank failures, watch for an end to the political impasse over raising the debt limit for the United States, and track the rate of inflation.

“Gold snapped to the day's highs on reflex after the Fed statement indicated a pause, but that was largely expected, and bullion has now retraced, waiting for (Fed Chair Jerome) Powell,” said Tai Wong, a freelance metals trader based in New York.

Following the Fed's decision, the benchmark 10-year Treasury yields decreased and the U.S. dollar index dropped 0.6%, increasing the price of bullion for buyers using other currencies. [USD/] [US/]

According to the CME's FedWatch tool, U.S. interest rate futures included a halt in the Fed's tightening at the policy meetings in June and July.

When interest rates rise, demand for non-yielding bullion, a traditional haven against inflation and economic uncertainty, declines as returns on assets with yields compete for investors' dollars.

For additional hints, investors were now waiting for Powell's news conference at 2:30 p.m. EDT.

Suki Cooper, an analyst at Standard Chartered, said that greater price volatility may be on the horizon due to worries about U.S. regional banks and the debt limit.

As a result of a flight to safety brought on by the U.S. financial crisis, gold prices had increased 1% in April.

Platinum fell 1.2% to $1,052.34 and palladium down 0.2% to $1,426.97, while silver was almost unchanged at $25.39 per ounce.


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