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Gold Pares Massive Gains on Donald Trump Victory

November 9, 2016 at 18:15 by Andrew Moran

Gold futures surged as much as 5% on the wake of a Donald Trump upset victory. As the Wednesday trading session progressed and the initial shock diminished, the yellow metal pared most of those gains.

December gold futures rose $3.50, 0.27%, $1,278.00 per ounce at 16:45 GMT on Wednesday. Gold had soared to nearly $1,340 an ounce in pre-market trading. The yellow metal has not surged this much since Brexit this past summer, when Great Britain voted to leave the European Union (EU). Gold has since lost a lot of its momentum as traders are now taking a wait-and-see approach by evaluating a Trump White House.

Silver is still continuing its strong performance. December silver futures jumped $0.19, or 1.06%, to $18.55 per ounce. Silver had also soared as high as $0.23 before retreating.

Investors tend to believe that a Trump presidency may provide growing uncertainty in the domestic and global economy. With the US, European, and Asian economies putting forward lackluster gains, president-elect Trump may throw a wrench into government and central banks’ plans.

The US dollar tumbled on Trump’s historic win as stocks plunged. Days before the election, markets had figured that former Secretary of State Hillary Clinton would win, especially after the FBI confirmed that it would not press charges against the Democratic nominee.

Moreover, there is now concern that the Federal Reserve may delay an increase to interest rates next month. Prior to Election Day, it was generally believed that the US central bank would pull the trigger on a rate hike for the first time since December 2015. According to the CME Group FedWatch tool, there is now a 74% chance of a rate hike, down from 80% earlier this week.

In a rising-rate environment, gold becomes less attractive to investors because it does not provide any yield. On the other hand, in a low-rate atmosphere, gold keeps its allure intact because it serves as a safe haven asset in a world with tepid returns. A strong dollar also hurts gold because it makes it more expensive to buy for foreign investors.

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