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Gold Futures Stay Flat amid US Election Jitters, Rate Hike

October 31, 2016 at 17:25 by Andrew Moran

What a difference a few days can make. There is now growing uncertainty within the US presidential election, and these fears have now been passed onto gold. With a looming increase to interest rates in December, traders seem to be taking a wait and see approach to the yellow metal as it has nudged downwards only slightly to kick off the trading week.

December gold futures dipped $2.80, or 0.22%, to $1,274.00 per ounce at 16:55 GMT on Monday. On Friday, gold was able to complete its third consecutive week of gains because of the news that FBI director James Comey was set to reopen the investigation into former Secretary of State and 2016 Democratic presidential candidate Hillary Clinton‘s emails. The precious metal is poised to finish October down 3.3%, which is more than the historical average of 0.1%.

Silver is trying to muster up a rally before the month comes to an end. December silver futures rose $0.03, or 0.19%, to $17.83 an ounce. Silver is set to complete October having dropped 7.8%.

Adding their losses into the mix, gold has advanced about 20% so far this year and silver has spiked roughly 40%.

Prior to the announcement by the FBI, the market had concluded that Clinton was likely going to defeat Republican nominee Donald Trump in the election next week. And the polls reflect the market’s election jitters. The latest poll suggests that Trump holds a four-point lead over Clinton. The market tends to believe that Clinton is more of a status quo candidate who would not cause too much disruption, while investors think Trump is a maverick and would create a level of uncertainty for global financial markets.

Gold was unable to make any more gains because there is the likelihood of a December rate hike by the Federal Reserve. According to the CME Group FedWatch tool, there is still an 80% chance of a rate hike. With positive third-quarter gross domestic product (GDP) figures and healthy jobs numbers, the Federal Open Market Committee (FOMC) will likely agree to boost rates for the first time since December 2015.

The US dollar strengthened on Monday ahead of October’s payroll data.

The yellow metal is sensitive to rising rates because it increases the opportunity costs. Also, since gold does not provide investors with any yields, traders seek out yield-bearing investment vehicles. Gold is just as sensitive to a strong greenback because it makes it more expensive for foreign investors to hold US-denominated commodities.

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