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Gold Drops for 3rd Week as Traders Expect Higher Rates

January 21, 2011 at 20:04 by Andriy Moraru

Gold is heading for its third weekly decline in a row as the speculators are detracted from this asset by the outlook for higher interest rates in the near future.

Gold is a major beneficiary of the world-wide low interest rates — cheap loans supply traders with money to buy gold, while the gold itself becomes a more attractive asset, which appreciation pace significantly outperforms the safe interest rates. Both the stock and bond markets are experiencing bullish trends for a rather long time now, suggesting that higher rates aren’t too far away.

The analysts point out the fact that the higher interest rates remove one of the most important causes of the bullish gold rally — the opportunity cost, which was at the record low levels since late 2008, when the global central banks had to cut the rates in emergency. The safety argument for using gold as an investment vehicle is also fading, as the traders become more risk-hungry.

Gold went down from $1,346.05 to $1,342.54 per troy ounce or about 0.3 percent as of 18:02 GMT on the sport market today. It’s also heading for the first bearish month since July 2010.

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