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Gold Dips as Market Prepares for Fed Rate Hike

November 29, 2016 at 18:27 by Andrew Moran

Gold fell on Tuesday as the market prepares for the Federal Reserve to raise interest rates next month. The yellow metal has lost more than $120 since November 8 with the so-called Donald Trump effect, the likelihood of a rate hike next month, and positive economic data in the US.

February gold futures dipped $4.00, or 0.34%, to $1,186.60 per ounce at 16:56 GMT on Tuesday. Gold has not traded this low since the beginning of June. The yellow metal ended last week’s trading week down about 4%. November has been gold’s worst month in more than three years.

Silver is putting forward moderate gains. December silver futures rose $0.05, or 0.34%, to $16.64 an ounce. Despite Tuesday’s increases, silver has been shedding its value and paring its 2016 gains for the past month.

The precious metals were able to benefit from a mild pullback in the US dollar. However, Tuesday’s losses were due to the growing expectation that the US central bank will pull the trigger on a rate hike at next month’s Federal Open Market Committee (FOMC) meeting. The latest comments from a plethora of Fed officials suggest that the central bank will certainly move ahead with its first rate hike since December 2015.

A strong dollar and rising rates negatively impact the yellow metal. A strengthening greenback makes commodities like gold and silver more expensive for foreign investors, and increasing rates lift the opportunity cost and send traders into yield-bearing assets.

Gold’s short-term future could also be at risk. Italy’s constitutional referendum and Austria’s presidential election will be held this weekend. Moreover, the European Central Bank (ECB) will hold its final policy meeting for the year early next month. November’s jobs report will also be released later this week.

With the latest declines, gold is on track to suffer its worst monthly drop since February 2013. This is interesting because usually October is gold’s worst month in the year.

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