Gold futures saw a rise in value on Wednesday following the Federal Reserve's announcement. The central bank revealed that it would be increasing its benchmark fed funds rate by 25 basis points, placing it within the range of 5.25% to 5.50%. The decision was not unexpected and the Federal Reserve stated that it remains vigilant regarding potential inflation risks.
According to Jerry Braakman, President and Chief Investment Officer of First American Trust, rate hikes typically lead to a short-term suppression of gold prices. This is due to the fact that higher interest rates strengthen the U.S. dollar. However, in Braakman's view, the long-term effects of higher rates could increase the risk of a recession by slowing down economic activity in the country. Consequently, he predicts a high probability of either a recession or stagflation in the medium term. Interestingly, Braakman notes that gold performs well in both of these scenarios.
Shortly after the announcement, August gold GCQ23 was recorded at $1,971.40 per ounce, a slight increase from its settlement price of $1,970.10 per ounce during Wednesday's session.
