. . . Gold Holds Solid Gains After Rate Hike Increase

As expected, the Fed bumped interest rates Wednesday, adding a little twist with a promise of tightening credit requirements. All of the financial players were warned this would happen, softening the overall blow to the economy.

But the banking crisis continues with most economists warning this latest hike will exacerbate challenges for small and midsized financial institutions. Once again, the “smart money” seems increasingly to be precious metals. According to Kitco:

The gold market is holding on to solid gains Wednesday after the Federal Reserve keeps its options open after raising interest rates by another 25 basis points.

As expected, the U.S. central bank raised the Fed Funds rate to a range between 5.00% and 5.25%. However, the statement provides little forward guidance in its monetary policy statement. This is the tenth time the central bank has raised interest rates in this tightening cycle.

“The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the central bank said.

In a separate article, Kitco noted:

Gold and silver prices are higher and hit daily highs in afternoon U.S. dealings Wednesday, in the immediate aftermath of an interest rate increase from the Federal Reserve that was widely expected. June gold was last up $14.00 at $2,037.50 and July silver was up $0.126 at $25.76.

The just concluded U.S. Federal Reserve Open Market Committee (FOMC) meeting saw the Fed raise the Fed funds rate range by 0.25%, to 5.00 to 5.25%, as expected. The FOMC statement signaled the committee will likely pause in its rate-hiking cycle. The rate hike move was unanimously agreed upon by the committee. The statement said the U.S. economy continues to grow modestly, but the tighter bank credit conditions are likely to weigh on the economy. Some market watchers are calling todays’ FOMC statement “a hawkish pause.” Traders now await the press conference from Fed Chairman Jerome Powell.

The European Central Bank meets Thursday. The ECB is also expected to raise its main interest rate by a quarter-point.

The marketplace is now looking forward to Friday’s April U.S. jobs report from the Labor Department. The key non-farm payrolls number is forecast to come in at up 180,000 versus a rise of 236,000 in the March report. The U.S. ADP national employment report came in strong, showing 296,000 jobs were created in April, almost double the forecast, and compares to a revised March reading of 142,000 jobs created. However, the manufacturing sector lost 38,000 jobs.

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