Gold prices edged higher on Wednesday, 16 September, as a softer US dollar offered support ahead of the Federal Reserve's policy decision later in the day. Spot gold rose 1.3% to $4,347.91 per ounce, recovering from a more than one-month low touched on Monday. US gold futures for December delivery also gained 1.3%, reaching $4,388.80.
Fed decision in focus
The move came as traders positioned for the Federal Open Market Committee (FOMC) announcement. Money markets are pricing in a more than 90% chance of a quarter-point rate hike, with another increase fully priced in by December. The last time the Fed raised the federal funds rate was on 26 July 2023, when it increased the target range by 25 basis points. The central bank then held rates before embarking on a series of cuts, the most recent of which occurred in December 2025.
Fed Chair Kevin Warsh, in his maiden Jackson Hole address, warned that inflation was not slowing meaningfully and reaffirmed the Fed's commitment to returning inflation to its 2% target. Hotter-than-expected inflation and jobs data in recent months have strengthened the case for tighter policy.
Impact on gold
Gold is traditionally viewed as a hedge against inflation, but higher interest rates reduce the appeal of non-yielding assets such as gold. A rate hike could encourage a shift towards interest-bearing assets like US Treasuries and boost demand for the US dollar as overseas investors seek higher returns. A stronger dollar would make gold more expensive for holders of other currencies, potentially weighing on prices.
In the domestic market, the near-month gold futures contract on the Multi Commodity Exchange (MCX) rose by ₹1,040 per 10 grams to ₹1,51,850. Domestic gold prices have fallen 1.34% so far in September after surging nearly 8% in August—the best monthly gain since February. Year-to-date returns stand at around 12%.
Broader context
Precious metals have experienced sharp volatility throughout 2026 after a record-breaking previous year. Profit-taking at the start of the year and rising inflation weighed on gold's appeal, at one point dragging prices to a five-month low. Central-bank purchases, which provided a floor for prices, have slowed in recent months.
Rising tensions between Washington and Iran have pushed crude oil prices higher, reinforcing expectations that central banks could keep interest rates elevated to combat persistent inflationary pressures. If policymakers do not see sufficient evidence that price pressures are easing, they may maintain a tighter monetary policy stance, which could continue to pressure non-yielding assets like gold.
Key takeaways
- Spot gold rose 1.3% to $4,347.91 per ounce on 16 September as the US dollar weakened ahead of the Fed decision.
- Markets see a more than 90% chance of a quarter-point rate hike, which would be the first increase since July 2023.
- Higher interest rates typically reduce gold's attractiveness because the metal offers no yield, and a stronger dollar could add further headwinds.
- Domestic gold prices are down 1.34% in September after an 8% rally in August, with year-to-date gains of about 12%.
Common questions
Why does a Fed rate hike affect gold prices?
Gold pays no interest or dividends. When interest rates rise, bonds and other yield-bearing assets become more attractive relative to gold. A rate hike can also strengthen the US dollar, making gold more expensive for international buyers and reducing demand.
What is the current status of Federal Reserve policy?
The Fed last raised rates in July 2023. It then held rates and later began cutting, with the most recent cut in December 2025. Markets now expect a quarter-point increase on 16 September 2026, with another hike fully priced by December.
Investors will watch the FOMC statement and Chair Warsh's press conference for clues on the pace and duration of any tightening cycle. Traders can track the latest movements via the live gold price.