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Gold Touches Three-Month High on Political Uncertainty

February 6, 2017 at 18:12 by Andrew Moran

Gold prices are touching three-month highs to kick off the trading week. The yellow metal is being supported by the growing level of political uncertainty in the US and Europe and the unknowns surrounding the US dollar.

April gold futures surged $10.70, or 0.88%, to $1,231.50 per ounce at 16:45 GMT on Monday. The last time gold prices traded at these levels was on November 10. This comes as gold recorded a 2.5% weekly gain last week and posted its fourth weekly gain of 2017.

Silver is also climbing on Monday. March silver futures rose $0.18, or 1.06%, to $17.66 per ounce. Silver was also able to post a weekly gain of around 2% last week.

The precious metals are being supported by the political strife unfolding in Europe and the US as well as the uncertainty regarding the greenback.

Investors are still unsure about the future of US President Donald Trump‘s policies, including his most controversial executive order to date, which suspended immigration from seven Middle Eastern countries. A US judge installed a nationwide block on president’s order on Friday, a move that was both celebrated and criticized.

Upheaval in the American political landscape prompted the US dollar to retreat as it shed 0.2% on Monday. Since January 3, the greenback has lost 3% of its value compared to the basket of currencies. The declines help make commodities like gold and silver less expensive to buy for foreign investors.

Moreover, upcoming elections in The Netherlands, Germany, and France are also causing concern among traders. With the populist uprising maintaining momentum and the polls suggesting the leaders – Marine Le Pen, Geert Wilders, and Frauke Petry – are on a path to victory, the outcome may spook markets.

All of these factors may temporarily postpone the Federal Reserve‘s intent to raise interest rates three times this year. Fed Chair Janet Yellen, some experts suggest, may take a wait-and-see approach to pulling the trigger on any or all rate hikes. Last week’s Federal Open Market Committee (FOMC) meeting did not provide any insight or hints as to when the US central bank will raise rates.

Gold is sensitive to a rising-rate environment because it lifts the opportunity cost and sends traders into yield-bearing assets.

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