On May 25th, the prices of gold were reported to have decreased by 1% from its previous hike. This happened as a result of the US dollar making a recovery in the stock market after a history of negative activity. This sudden drop in gold prices was observed right before the US Central Bank released details of the agenda discussed during its meeting held earlier in May. This meeting, titled ‘Federal Open Market Committee policy meeting’ was chaired by Fed Chairman, Mr. Jerome Powell.

According to the minutes of the meeting, the Federal Reserve is planning to repeatedly increase the dollar interest rates by 50-basis-points, and introduce more tightened monetary policies. Even though these measures may risk financial stability, they are expected to help battle inflation.

While gold prices were lowered to $1847.55 an ounce, the US dollar grew stronger by 0.4%. Interestingly, the dollar had touched its lowest recently on May 24, and gold prices had been on a rise for 5 days before this sudden shift in trend. This development comes as bad news, particularly to the buyers of gold who are non-residents of the United States. 

Mr. Edward Moya –a senior analyst at OANDA–  is worried that if the Federal Reserve keeps increasing the interest rates to protect the US dollar, the market for gold will be impacted negatively. Hence, he advises the board to take a more cautious approach in the interest of the valuable metal. 

Mr. Powell had earlier established that he will continue to increase the interest rates as per requirement until there is a proven decrease in inflation. Thus, stock market investors are already looking forward to furthering hikes of 50-basis-points in the interest rates during the months of June and July. 

It is also important to note that these measures may cause “significant economic dislocation” as pointed out by Raphael Bostic, the President of the Federal Reserve Bank of Atlanta.