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Gold Plummets on Higher US Dollar, Treasury Yields

January 29, 2018 at 17:37 by Andrew Moran

Gold futures are plunging to start the trading week as the US dollar and Treasury yields edge upwards. After posting immense gains midweek, the yellow metal plummeted, but it was still able to post a solid 1.4% weekly gain, which was the sixth increase in seven trading weeks.

February gold futures tumbled $14.00, or 1.04%, to $1,338.10 per ounce at 16:22 GMT on Monday. Gold prices had been trading at their best levels since August 2016 before paring those gains.

Silver, the sister commodity to gold, is also dropping to kick off the trading week. March silver futures shed $0.34, or 1.96%, to $17.10 an ounce. The white metal recorded a 2.4% gain last week.

Precious metals are taking a hit on a strengthening US dollar as the greenback rose 0.55%. A stronger dollar is bad for commodities like gold and silver because it makes it more expensive for foreign investors to purchase. The US dollar crashed to as low as 88.23 after Treasury Secretary Steven Mnuchin suggested the administration may depress the greenback, which caused President Donald Trump to perform some damage control, blaming the media for mischaracterizing his remarks.

Treasury yields continued the momentum from Friday, rising as much as five basis points.

Investors appear to be taking profits from gold and silver ahead of the Federal Reserve policy meeting this week. The Federal Open Market Committee (FOMC) will likely provide guidance as to how the US central bank will move on interest rates in 2018. Gold is generally sensitive to a rising-rate environment because it lifts the opportunity cost and sends traders into yield-bearing assets.

Fed policymakers are expected to take account the employment situation, rising inflation levels, and the latest gross domestic product numbers. According to the CME Group FedWatch tool, there is a 4% chance of a January rate hike.

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