The price of gold (TVC: $GOLD) and silver (TVC: $SILVER) are plunging after the U.S. Federal Reserve signalled that interest rates are likely to rise later this year.
The price of gold bullion is down more than 2% and trading at $4,238.70 U.S. per ounce. Silver’s price has fallen 5% to trade at $67.38 U.S. an ounce.
Precious metals such as gold and silver are non-yielding assets and they tend to perform better when interest rates are lower.
However, at the conclusion of its latest policy meeting, the U.S. central bank indicated that it expects to raise interest rates in this year’s second half, sending gold and silver sharply lower.
The central bank’s Open Market Committee is leaning toward a 25-basis-point interest rate increase later this year.
Going into the latest interest rate decision, financial markets were pricing in a 64% chance that the U.S. Federal Reserve will raise interest rates a quarter of a percentage point in December.
The central bank is grappling with inflation above 4%, more than double its annualized target of 2%.
As was widely expected, the Federal Reserve kept its benchmark federal funds rate at its current target range of 3.50% to 3.75% for now.
But the outlook that calls for higher interest rates is negative for gold, silver, and other metals. Platinum and Palladium prices are each down 4% after the latest Fed meeting.
Metal prices are also under pressure as the U.S. dollar climbs higher on the prospect of higher interest rates. The U.S. dollar is ⁠currently at a one-year high versus other currencies.
