Gold’s pricing mechanism has changed. Previously, people watched when the Fed would cut rates; now they watch whether the market still believes the Fed, with the outcome showing up in long-end Treasury yields.
Here, rate hikes are seen as compensation for inflation—how much money inflation eats away, interest rates must make up for it. What determines the direction isn’t whether this particular hike happens, but whether long-end Treasury yields can hold steady.
In the early hours of September 17 Beijing time, the U.S. Federal Reserve raised interest rates by 25 basis points to 3.75%–4.00%. All 12 votes passed unanimously, the first rate hike in more than three years. The dot plot showed that there will be one more hike during the year. It will not be until 2029 for inflation to return to 2%. The U.S. Dollar Index rose to 100.33, the 10-year U.S. Treasury yield rebounded to 5.02%, and the 2-year yield rose to 4.73%. Spot gold fell 0.70% to $4,264, with the intraday low dropping by about 3%. Silver fell 0.68% to $63.42. The Dow fell 1.21%, the S&P 500 fell 0.45%, and the Nasdaq closed roughly flat.
In early August, the view that the Fed is unlikely to move interest rates has been overturned—at least for now. Markets had already priced in the rate hike itself; the surprise was that the dot plot is tighter.
Put it to the market: the biggest fear for crypto is tighter liquidity. A rate hike is like pulling some of the looseness out of the market. Bitcoin still rose 0.62% on the day, returning to around $76,000, mainly supported by its own funds. The stock market was pressured first in terms of valuation. The Dow fell the most, while semiconductors actually rose against the trend—money is picking tougher performance. Gold and silver are driven by real interest rates after stripping out inflation. Silver has an extra layer of industrial demand, so when orders weaken, it drops faster than gold.
Next, watch two signals. If long-term U.S. Treasury yields hold steady or even fall back, some of the portion of gold’s front-running earlier on should give back. If yields continue to surge higher, gold’s safe-haven role will move back to the forefront. If the dollar stays above 100, funding conditions for emerging markets and crypto assets will tighten further.