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Gold value falls after some Fed officials forecast higher interest rates

One precious metals analyst says volatility should be expected

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Photo (c) tazytaz - Getty Images
Gold tumbled below $1,800 an ounce on Wednesday -- the lowest value in six weeks -- as the U.S. dollar continued to gain strength and Federal Reserve officials laid out interest rate projections for the next two years.

In the new forecast, 11 out of 18 Fed officials estimated that there will be at least two quarter-point interest rate hikes by the end of 2023. That end date is sooner than some people anticipated. If it happens, it could help boost the U.S. dollar and U.S. bond yields, but it could also take a bite out of gold. 

Spot gold had fallen to $1,784.2608 an ounce by 8:30 a.m. (EST) on Thursday before inching back up to $1.786.57 as of 9:30 a.m. 

“A big grain of salt”

While the Fed’s hawkish turnabout might throw investors off, Fed Chair Jerome Powell said the interest rate forecast “should be taken with a big grain of salt” and that any discussion about raising interest rates would be “highly premature.” Powell’s not alone in telling investors to back away from the panic button. 

“On the face of it, this is a classic market overreaction,” said Investing.com’s Andrew Lane. “Usually when headlines like this break, the market overextends in one direction, and it settles out a few days later.”

Lane says not a lot has really changed from a fundamental perspective. He firmly believes that the Fed will increase rates nominally sometime in the next year and a half, and doing that rests on the economic situation. 

“Volatility is expected in this market, as is patience. Remove the emotions and remember the bigger picture. Our view is this is nothing other than a buying opportunity.”

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