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Gold, Silver Make Slight Gains Ahead of Fed Meeting

December 12, 2016 at 18:07 by Andrew Moran

Gold and silver are looking to end the trading session with some gains. One day before the Federal Reserve holds its final policy meeting of 2016, the precious metals are kicking off the week trading in positive territory.

February gold futures rose $4.70, or 0.40%, to $1,165.60 per ounce at 16:44 GMT on Monday. This comes as gold posted its fifth consecutive weekly loss on Friday. The yellow metal shed nearly 1% of its value last week as it settled at its lowest level since February.

Silver is also looking to gain some momentum ahead of the Federal Open Market Committee (FOMC) meeting. February silver futures jumped $0.26, or 1.55%, to $17.23 per ounce. The precious metal increased 1% last week.

Despite the likelihood that the US central bank will raise interest rates this week, gold and silver are trying to surge. According to the CME Group FedWatch tool, there is a near 100% chance of Fed Chair Janet Yellen pulling the trigger on a rate hike, which will weaken demand for the precious metals.

In a rising-rate environment, the opportunity cost goes up and traders flee from the safe haven asset into yield-bearing assets. With the US dollar climbing about 3% year-to-date, commodities like gold and silver become more expensive for foreign investors to purchase.

New data from the US Commodity Futures Trading Commission (CFTC) show that hedge funds and money managers reduced their net long positions in gold and silver for the fourth straight week. The data show that they slashed their net long position in gold by 22,578 to 80,814 lots.

Even when you factor in the recent losses since November 8, gold is still up close to 20% and silver is up by about 40%. As the Trump Effect continues in the stock market, gold and silver could be in a for rough 2017.

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