Ahead of US Fed rate hike impact on gold rates prediction: How FOMC outcome will effect yellow metal

Gold prices were trading with mild gains in Wednesday's session, 16 September, supported by a weaker US dollar as traders awaited the US Federal Reserve's policy decision later in the day.

Spot gold was up 1.3% at $4,347.91 per ounce after touching a more than one-month low on Monday. US gold futures for December delivery rose 1.3% to $4,388.80. In the domestic market, the near-month futures contract on the MCX edged higher by ₹1,040 per 10 grams to ₹1,51,850.

Precious metals, which are highly sensitive to interest-rate movements, have witnessed sharp volatility throughout 2026 after enjoying a record-breaking year. Profit-taking at the start of the year, coupled with rising inflation, has weighed on the appeal of gold, dragging prices to a five-month low at one point.

The escalation in tensions between Washington and Iran has pushed crude oil prices higher, in turn raising expectations that the Federal Reserve and other central banks could keep interest rates higher in response to persistent inflationary pressures

What makes gold sensitive to Fed policy?

Gold is traditionally viewed as a hedge against inflation, but higher interest rates typically reduce the appeal of non-yielding assets such as gold.

The latest These inflation data, with the two key inflation reports coming in hotter than expected, coupled with hotter-than-expected jobs data, have strengthened expectations of a rate hike. have further strengthening expectations around the Fed's rate decision.

Money markets are currently pricing in a more than 90% chance of a quarter-point rate hike, with another move also fully priced in by December. In his maiden Fed Jackson Hole address, Fed Chair Kevin Warsh warned that inflation was not slowing meaningfully and reaffirmed that policymakers remained committed to returning inflation to the Fed's 2% target.

Investors will therefore closely track the Fed's decision and Warsh's comments for clues on the central bank's future policy path.

Will higher interest rates hurt gold prices?

Higher interest rates could make gold and silver less attractive to investors, encouraging a shift towards interest-bearing assets such as US Treasuries. Gold and silver are non-yielding assets, while a rate hike could also boost demand for the US dollar as overseas investors seek higher returns from US assets.

A stronger US dollar could further weigh on precious metals by making them more expensive for holders of other currencies. Meanwhile, it remains to be seen how long gold prices can continue to draw support from central-bank purchases, which have slowed in recent months.

Inflation has remained above the Fed's 2% target for an extended period. If policymakers do not see sufficient evidence that price pressures are easing, they could maintain a tighter monetary policy stance, which could keep pressure on non-yielding assets such as gold.

If the rate hike is announced today, it would mark the Fed's first rate increase since 2023. The last time the Federal Reserve raised the federal funds rate was on July 26, 2023, when it increased the target range by 25 basis points. The Fed initially held rates at that level before beginning a series of cuts, with the most recent reduction coming in December 2025.

Domestic gold prices were down marginally by 1.34% in September so far after surging nearly 8% in August, marking their best monthly gain since February. The latest rally has lifted gold's year-to-date returns to around 12%.

Disclaimer: We advise investors to check with certified experts before making any investment decisions.