Gold Spot Price AUD $6108.86

Silver Spot Price AUD $92.03

Platinum Spot Price AUD $2502.57

The era of falling interest rates may have come to an abrupt end. The US Federal Reserve has delivered its first rate increase in more than three years, lifting rates by 0.25% to a range of 3.75–4.00%. More importantly, 16 of the Fed’s 18 policymakers are now projecting at least one more increase before the end of the year.

Australia is staring at a remarkably similar problem. Inflation remains stubborn, energy costs have added another layer of pressure and expectations are building that the RBA may also need to push rates higher. After several years where markets were largely asking when rates would fall, the conversation has quickly flipped back to how high they may need to go.

Perhaps the most interesting reaction has been just how calmly markets have taken the news. Wall Street initially fell following the Fed announcement, but bounced strongly in the following session. The S&P 500 gained around 1.1%, the Nasdaq jumped 1.7% and the Dow added around 0.6%. Investors knew the hike was coming, and for now at least, appear comfortable that the US economy can absorb it.

Gold had a much wilder ride. It initially climbed above US$4,365 an ounce before being knocked down towards US$4,240 as the Fed confirmed higher rates and signalled more could follow. That reaction made sense: higher interest rates and bond yields generally make a non-yielding asset like gold less attractive.

But gold didn’t stay down for long. It rebounded more than 2% during the following session, climbing back above US$4,360 as the US dollar and Treasury yields eased. After recently coming under considerable pressure around its 50-day moving average, that recovery will be an important one to watch.

It creates an interesting tug-of-war for gold. More rate rises should theoretically place downward pressure on the metal, particularly if they keep bond yields and the US dollar elevated. At the same time, the reasons central banks are hiking, persistent inflation, geopolitical uncertainty and concerns around government debt, are many of the same forces that can drive investors towards gold.

So far, neither equity markets nor gold appear particularly frightened by the return of rate hikes. The bigger test comes if one hike becomes two, then three, particularly if Australia follows the US down the same path.

This article is general market commentary only and should not be relied upon as personal financial advice. Consider the information carefully, conduct your own independent assessment and seek professional advice where appropriate before making any investment decision.

Enjoy today’s charts

Gold daily chart, with 50MDA