Commodities gain after US Fed hikes rates

Markets read the Fed's announcement as dovish, as now only two rate hikes are expected this year

Commodity prices, led by gold, advanced in the international market and in India, following a quarter per cent increase in rates by the US Federal Reserve on Wednesday. 

Markets read the Federal Reserve’s announcement as dovish, as now only two rate hikes are expected this year. 

Pro-Europe parties’ victory in the Netherlands election, which weakened Euro, also helped the price surge. Dutch voters turned out in large numbers to back the Liberal Party, easing concerns about the rise of populism in the region. 

Immediately after the rate hike on Wednesday, gold went up over two per cent, and on Thursday, it was trading at $1,231 per ounce. In Mumbai’s Zaveri Bazar, standard gold closed at Rs 28,420 per 10 gm, which was Rs 355 higher than the previous day. Silver went up by Rs 900 to close at Rs 41,540 per kg.

T Gnanasekar, director, Commtrendz Research, said, “After the dovish statements from FOMC (Federal Open Market Committee), risk appetite got a boost. Bullion got a reprieve, and metals and crude too. The firm trend is likely to continue at least till early next month.”

Fed Chair Janet Yellen said in a press conference that "the simple message is, the economy is doing well.” Investors anticipated the tightening and treasury yields had climbed with the dollar on speculation the central bank might signal a faster pace of tightening.

Just hours after the Fed’s decision, the Bank of Japan (BOJ) left its plans unchanged, increasing the policy divergence between the two central banks. China’s central bank raised borrowing costs as a stable economy and factory reflation give it scope to follow the US. The Swiss National Bank kept its deposit rate at an historic low and reaffirmed its threat to intervene to keep a lid on the franc. West Texas Intermediate climbed 1.1 per cent to $49.40 a barrel and Brent gained 1.2 per cent to $52.43. 

On London metal exchange, copper went up 1.4 per cent to $5,943 a tonne and zinc price increased by 1.7 per cent.