Fed hikes rates, gold challenges old rules

According to The Express Tribune, the US Federal Reserve lifted its benchmark policy rate by 25 basis points to a band of 3.75% to 4%, its first increase since July 2023. The vote was unanimous and came despite repeated calls from President Donald Trump for much lower borrowing costs. Fed Chair Kevin Warsh argued that inflation remains too high after running above the 2% target for more than five years, and he signalled that further hikes were possible if price pressures persisted.

Gold has nevertheless stayed above $4,000 even though real rates are near multi-year highs, a pattern that cuts against standard economic theory. Because bullion pays no interest or dividend, higher returns on interest-bearing assets would normally be expected to weigh on its price. Analysts are divided on whether that link has weakened, and they are weighing the role of sovereign and custody risks alongside central-bank buying, which has stayed elevated.

The article outlines three channels through which reserve custody could matter: fiscal and credit pressures, reserve portfolio values, and legal jurisdiction risk. The piece points to roughly $300 billion of Russian reserves being locked down after the 2022 invasion of Ukraine as a precedent. Even so, the article concludes that New York and London still offer major advantages as reserve centres, and that any changes in custody are gradual and country-specific.