Fed's first hike in three years fails to sink gold as metals rebound

Higher interest rates are supposed to be gold's kryptonite. This week the Federal Reserve delivered its first hike since 2023, paired it with a hawkish message, and gold still finished the week higher.

On September 16 the Fed raised its target range by 25 basis points to 3.75%–4.00%. That alone was notable — the first increase in more than three years. What made it hawkish was the dot plot: 16 of 18 policymakers penciled in at least one more hike before the end of 2026. The message was clear that the fight against inflation isn't finished.

Markets reacted the way a textbook says they should. Treasury yields pushed back toward 5% — the 10-year briefly poked above it, the highest since 2007 — the dollar firmed, and spot gold dropped sharply, falling nearly 2% earlier in the week as an oil surge added to the rate-hike case.

Then the script broke. By Friday, gold and silver had clawed back the losses and were sitting on weekly gains. Spot gold traded near $4,382.38 an ounce in late-afternoon U.S. action, according to Kitco. A pullback in crude oil offset much of the pressure from the yield rebound and firmer dollar.

The interesting part isn't the day-to-day tape — it's the resilience. Gold is being asked to fall on rising rates and a stronger dollar, and it isn't cooperating for long. The reason shows up in the demand data.

Reported central-bank purchases climbed back to a net 23 tonnes in July, pushing year-to-date buying to roughly 130 tonnes. Second-quarter net central-bank demand hit 289 tonnes — a record for any second quarter. That steady official-sector bid provides a floor that speculative rate traders keep underestimating.

The Fed also isn't acting alone. The European Central Bank has been lifting its own policy rate, part of a broader turn back toward restrictive policy across major economies. Normally a synchronized global tightening would be a headwind for a non-yielding asset. Instead gold is absorbing the regime change with, as one analyst put it, remarkably little cost.

For anyone buying physical metal, the takeaway is straightforward: the old rule that rising rates automatically sink gold is being tested and, for now, failing. When yields climb but central banks and physical buyers keep accumulating, the safe-haven and reserve-asset story can outrun the carry-cost story.