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Gold Prices Climb Ahead of FOMC Meeting

September 19, 2016 at 17:24 by Andrew Moran

One day before the Federal Open Market Committee (FOMC) convenes for September, gold prices are looking to make some gains. Gold and silver are rallying before the US central bank decides to either raise interest rates or delay a rate hike once again.

December gold futures climbed $6.70, or 0.51%, to $1,316.90 per ounce at 16:53 GMT on Monday. Last week, gold shed 1.8% of its value and settled on Friday at a near three-month low. Investors are dumping gold in preparation of the Federal Reserve moving on a rate hike.

Silver is also rallying ahead of the crucial September meeting. December silver futures rose $0.45, or 2.43%, to $19.32 an ounce. Silver also had a terrible week last week when it lost 2.6% of its value.

Even with last week’s market beating, gold has risen 24% year-to-date. Silver has also increased 40%.

Traders are getting out of the bullion rally as they have dumped the yellow metal the most since June. It has been reported that holdings in global exchanged-traded funds (ETFs) backed by the metal are down from a three-year high in August. Also, open interest in gold futures is at the lowest level since May.

All of this stems from concerns that the Fed will go through with a rate hike. A recent wave of data has made the futures market seem more certain that the US central bank will announce its intentions to raise rates at the September 20 and 21 FOMC meeting.

The US consumer price index (CPI) jumped 0.2% in August. When you exclude volatile food and energy categories then the CPI increased 0.3%. Moreover, homebuilder sentiment spiked to 65 in September, which is the highest level in nearly a year, and mortgage applications went up 4.2% on strong buyer demand.

Futures markets traders believe a rate hike is more likely to take place in December. According to the CME Group FedWatch tool, the probability of a rate hike on Wednesday stands at just 15%. The likelihood of a December rate hike is at around 60%.

Gold is negatively impacted in a rising-rate environment. Since the yellow metal does not pay any yield, investors seek out high-risk or yielding investments, such as stocks, oil, and bonds.

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