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Gold Hovers Around 10-Month Low as Yellow Metal Dips Nearly 1%

December 5, 2016 at 18:10 by Andrew Moran

Gold was unable to take advantage of the political uncertainty in Europe as the yellow metal dipped close to 1% and is flirting with its lowest level since February. With an almost certain increase to interest rates next week, gold could shed some of its value ahead of the Federal Reserve‘s final policy meeting of 2016.

February gold futures tumbled $8.30, or 0.70%, to $1,169.50 per ounce at 16:44 GMT on Monday. Gold declined to as low as $1,160 at the start of the trading session before paring some of its losses. The yellow metal is now hovering around a 10-month low. It suffered its fourth consecutive week of losses last week as it declined 0.4%.

Silver is staying relatively flat to kick off the trading week. February silver futures decreased $0.03, or 0.19%, to $16.80 an ounce. Silver is trading at lowest level since June. It was able to muster up a 1.2% weekly gain last week.

Gold prices slumped despite the political fallout from Italy’s weekend constitutional referendum. Voters overwhelmingly rejected a referendum that would have seen Prime Minister Matteo Renzi receive greater governing powers. After putting his political career on the line, Renzi announced that he would be stepping down from his position. Ostensibly, the populist uprising swept into Italy, too, mirroring Brexit and Donald Trump‘s upset victory.

On the other hand, Austrian voters rejected populism as the nation’s far-right political party, the Freedom Party, lost the presidential election this past weekend.

The weekend’s political events sent the euro to its lowest level against the US dollar in two years.

Traders believe that it was US monetary policy that weighed heavier on gold than political upheaval in Europe during Monday’s trading session. The US central bank will hold its final Federal Open Market Committee (FOMC) meeting this year on December 13 and 14, when Fed Chair Janet Yellen is expected to pull the trigger on a rate hike. Meanwhile, investors believe that monetary policy will tighten at an accelerated rate throughout 2017.

Gold is sensitive to a rising-rate environment as it lifts the opportunity cost and sends traders away from commodities and into yield-bearing assets.

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