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Gold Plummets to Lowest Level Since May

November 18, 2016 at 19:11 by Andrew Moran

In post-election trading, gold is in free fall and has dipped to its lowest level since May. The yellow metal is declining as the US dollar continues to surge and positive economic data keep coming out.

December gold futures slid $8.70, or 0.71%, to $1,208.20 per ounce at 17:43 GMT on Friday. Gold is poised to finish off the week down 1% and post its second consecutive weekly loss. The yellow metal will close at a 5-½-month low.

Silver is also in a rut. December silver futures tumbled $0.16, or 0.97%, to $16.61 an ounce. Silver is set for a weekly loss of 4.4%. The last time silver traded this low was at the beginning of June.

The precious metals are declining after the US dollar soared to a 14-year high against a basket of currencies. The greenback is surging ahead due to high expectations that the Federal Reserve will raise interest rates at next month’s Federal Open Market Committee (FOMC) meeting. US president-elect Donald Trump‘s plan to increase fiscal spending is also contributing to a strengthening dollar.

Fed Chair Janet Yellen provided Congress a positive economic outlook and confirmed that Trump’s surprise victory has had no bearing on the central bank’s decision to raise rates “relatively soon.”

Gold is weakened in an environment of rising rates and a stronger dollar. When rates go up, the opportunity cost is lifted and investors flee the yellow metal in favor of yield-bearing investments. When the US dollar goes up, commodities become more expensive to buy for foreign investors.

In addition to the dollar and the Fed’s near-term future, a plethora of positive economic data is contributing to gold’s decline this week. Unemployment claims have dipped to a four-decade low, while housing starts have spiked to a nine-year high.

Despite recent losses, gold is still up 20% year-to-date and silver has climbed about 40%.

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