Despite the popular notion that interest rate hikes have a bearish impact on gold prices, spot gold headed for the biggest gain in three weeks after the rate hike. Gold prices moved up 0.58% to $1,255.90 an ounce on Dec 14. This was because the market had already factored in the possibility of a rate hike given the upbeat economic data. Gold prices trended upward interpreting the Fed’s statement as dovish considering that it is planning only three rate hikes in 2018 and not four.

As widely anticipated, the Federal Reserve raised the benchmark interest rate by a quarter percentage point for the third time this year, pushing the target range to 1.25-1.5%, following a 7-2 vote. The Fed eyes three more hikes in 2018 and two in 2019, acknowledging the fact that inflation continues to its fall behind its 2% target. The inflation forecast for 2018 got a modest bump, from 1.6% to 1.7%. The Fed’s preferred gauge showed an annualized growth of 1.6% in the latest reading.

The committee strengthened some of the wording regarding the economy in its post-meeting statement. The Fed stated that “economic activity will expand at a moderate pace and labor market conditions will remain strong”. The Fed now envisions economy to grow at a rate of 2.5% in both 2017 and 2018, up from previous forecast of 2.4% and 2.1%, respectively, in September. In another move that could tighten monetary conditions, the Fed confirmed that it would step up the monthly pace of shrinking balance sheet, as scheduled, to $20 billion from $10 billion beginning in January.

Gold’s Run So Far in 2017

So far this year, despite the prospects of the Fed hiking rates looming large and favorable equity markets, gold has managed to notch a gain of 9%. Particularly, the yellow metal’s prices were buoyed by its safe haven appeal this year owing to geopolitical tensions. Further, frequent terrorist attacks in UK and escalating tensions between the United States and North Korea fueled the price rise this year. In fact, the precious metal broke the threshold limit of $1,300 an ounce this year triggered by the United States-North Korea imbroglio.