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Gold, Silver Rally Despite Hawkish Janet Yellen Speech

August 26, 2016 at 17:22 by Andrew Moran

Gold and silver rallied during the Friday trading session, even though Federal Reserve Chair Janet Yellen appeared hawkish in her remarks pertaining to interest rates. The precious metal gained from weak domestic economic data released just before Yellen spoke in Wyoming during the Fed’s annual summer retreat.

December gold futures climbed $4.56, or 0.35%, to $1,327.60 per ounce at 17:52 GMT. The Friday rally helped reduce gold’s weekly losses. Gold slipped to a one-month low on Thursday due to positive US economic data earlier this week.

Silver also made a rally by rising above $19 early in the trading session, but it would later pare some of those gains. September silver futures rose $0.20, or 1.10%, to $18.68 an ounce.

The rally in precious metals was supported by a downward revision of the US gross domestic product (GDP) in the second quarter. The US GDP only advanced 1.1% during the April-to-June period. This is down from initial estimates of 1.2%.

At the Fed’s economic symposium, Yellen confirmed that the case for a rate hike has strengthened.

In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal-funds rate has strengthened in recent months.

Following Yellen’s speech, Fed Vice Chair Stanley Fischer told CNBC that the August jobs report will determine if the US central bank will raise rates. He noted that the US economy been quite strong and that the labor market has been healthy this year.

That will probably weigh in our decision, along with other data that may come in. The problem with this economy is there is so many numbers each day. You have to try and figure out what is the main thrust of what’s going on in the economy. You can always find a set of data that will enable you to build a different case. That’s the hard part.

Yellen’s remarks helped raise the odds of a September rate hike to 30%, according to the CME Group FedWatch tool. The market is very certain that the Fed will raise rates in December as the odds stand at 56%.

The Federal Open Market Committee (FOMC) will hold its next meeting on September 20 and 21. This is when the Fed will consider a rate hike.

During a rising-rate environment, gold’s allure diminishes because it does not offer investors a yield. With higher interest rates, investors look for riskier assets, such as oil and stocks.

If you have any questions and comments on the commodities today, use the form below to reply.

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