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Gold Rallies on Investors Revisiting Interest Rate Hike Expectations

July 17, 2017 at 16:45 by Andrew Moran

Gold futures are rallying to kick off the trading week as investors are taking another look at expectations of the US central bank raising interest rates for a third time this year. Because of soft US data and the greenback tumbling to multi-month lows, traders are renewing their positions on the yellow metal.

August gold futures rose $5.90, or 0.48%, to $1,233.40 per ounce at 16:33 GMT on Monday. Gold prices are trading above the 200-day technical moving average of $1,230. The precious metal snapped its five-week losing straight last week as it advanced 1% last week.

Silver, the sister commodity to gold, is continuing to rally. September silver futures jumped $0.18, or 1.14%, to $16.11 an ounce. After slumping to a 16-month low and declining 6.8%, the white metal surged nearly 4% last week.

Precious metals are benefiting from a weaker US dollar as the greenback shed 0.1%. The US dollar is now trading at a 10-month low against a basket of currencies. A falling dollar is good for commodities like gold and silver because it makes it cheaper for foreign investors to buy.

Investors are coming through recent inflation and domestic demand reports. These figures are suggesting that perhaps the Federal Reserve will delay another rate hike until later in the year. Fed Chair Janet Yellen revealed to Congress last week that the federal funds rate may not need to increase substantially to obtain “a neutral policy stance.” Traders have been bullish that the Fed could raise rates as early as the Federal Open Market Committee (FOMC) policy meeting in September.

Gold tends to be sensitive to a rising-rate environment because it lifts the opportunity cost and shifts traders into yield-bearing assets to take advantage of higher rates.

Year-to-date, gold has advanced 6%, while silver has lost 1% of its value.

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