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Gold Still on Track for First Yearly Gain Since 2012

December 20, 2016 at 18:18 by Andrew Moran

Gold and silver are continuing to shed the gains they have made this year. The precious metals are falling amid a surging US dollar and investors fleeing into yield-bearing assets. With the Federal Reserve planning to raise interest rates three times next year, will gold fall into a bear market in 2017?

February gold futures tumbled $10.20, or 0.89%, to $1,132.50 per ounce at 16:53 GMT on Tuesday. Gold is still flirting with 10-month lows as it settled at its lowest level since February 2 last week of $1,129. The yellow metal has suffered six consecutive weekly losses and has shed more than 12% since November 8.

Silver is not performing any better heading into the Christmas season. February silver futures declined 0.13, or 0.83%, to $15.95 an ounce. Silver is trading at its lowest level since the beginning of summer.

Despite the massive losses for the past month, gold and silver are set to post their first annual gains since 2012. Gold is poised for an 8% gain for 2016, while silver is on track for a near 20% gain.

The precious metals weakened on Tuesday as the US dollar surged to a 14-year high. As the market braces for the US central bank to raise rates eight to nine times over the next three years, the greenback is making considerable gains. It has soared more than 3% year-to-date, which has harmed gold.

A stronger dollar makes commodities like gold and silver more expensive for foreign investors to buy. When you factor in a rising-rate environment, the opportunity cost is lifted and traders retreat from gold and head into assets that generate a yield.

Gold bugs fear that 2017 may be a down year for the yellow metal in the US. As the national economy improves and the Fed proceeds with rate hikes, it may enter into bearish territory. Gold may benefit from the political uncertainty forming in Europe, further monetary policy easing outside of the US, and the pecuniary chaos that is unfolding in South Asia.

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