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Gold Prices Weaken over Rising Federal Reserve Rate Hike Expectations

July 25, 2016 at 17:27 by Andrew Moran

Gold prices started off the week in negative territory. The yellow metal weakened over rising expectations of the Federal Reserve raising interest rates Bounce House For Adults later this year. The US central bank will finish a two-day meeting on Wednesday, when it could provide a hint as to what it will be doing for the rest of 2016.

August gold futures declined $2.91, or 0.22%, to $1,320.19 per ounce at 17:00 GMT on Monday. This comes as gold hit a one-month low last week amid positive US economic data, central banks leaving key interest rates unchanged, and modest economic growth in emerging markets.

The yellow metal has climbed about 23% so far this year.

Silver, meanwhile, has also been trading downwards to kick off the trading week. September silver futures fell $0.06, or 0.32%, to $19.59. Year-to-date, silver has risen 43%, though it has pared some of its gains as Brexit concerns have waned in recent trading sessions.

Fed policymakers will hold meetings beginning on Tuesday. They will likely try to get a grip on the mixed economic signals, at home and abroad. For instance, officials will see that US new-home sales decreased in May, but single-family construction permits jumped. These are the kinds of data elements to discern.

The Federal Open Market Committee (FOMC) is not expected to make any drastic monetary policy changes. Analysts, however, believe the FOMC may provide a glimpse as to what Fed Chair Janet Yellen intends to do over rates for the rest of the year.

According to the CME Group FedWatch tool, the probability of a rate hike in December stands at 40%.

In a rising rate environment, gold loses its luster because the opportunity costs of holding the yellow metal diminish since it offers no yield. With interest rates on the rise, investors are more attractive to riskier assets, like oil and stocks.

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