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Gold, Silver Look to Extend 2016 Gains into New Year

January 3, 2017 at 18:01 by Andrew Moran

Gold posted an 8% gain last year, while silver recorded a 20% increase. Despite the massive year-end losses, the precious metals are looking to extend 2016’s gains into the New Year. On the first trading day of 2017, gold and silver are looking pretty strong so far.

February gold futures climbed $9.90, or 0.86%, to $1,161.80 per ounce at 16:36 GMT on Tuesday. A stronger US dollar, upbeat US construction data, and surging stock prices all tamed gold’s ferocious start to the trading day.

Silver is also having some momentum to start 2017. February silver futures rose $0.47, or 2.95%, to $16.40 an ounce. Silver is classified as a precious metal, but it also comes with an array of industrial uses. Because of this, silver was able to take advantage of positive manufacturing news in the US and China.

Both gold and silver have been battered in the wake of Donald Trump‘s upset presidential victory in November. Gold shed about 12% of its value in the final weeks of 2016, while silver lost around 20%.

With the Federal Reserve poised to raise interest rates three times this year, investors are shying away from the safe haven asset and heading into yield-bearing assets. In a rising-rate environment, the opportunity cost is lifted and traders flee from commodities like gold and silver and into bonds and stocks.

Moreover, the president-elect plans to move ahead with his aggressive stimulus spending, which gave the greenback a boost towards the end of the year. A strengthening dollar, which was the key market trend throughout 2016, makes gold more expensive for foreign investors.

It is not all doom and gloom for gold and silver. Trump’s spending initiative is expected to spur inflation and create more debt, which is troublesome in a rising-rate world. Also, there is still political uncertainty in Europe, central banks continue to maintain accommodative monetary policies, and the long-term debt trend is starting to form a bubble.

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