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Gold Posts 7% Decline in May for First Monthly Loss of 2016

June 1, 2016 at 19:19 by Andrew Moran

The month of may was not too kind to gold and the precious metal family.

June gold futures rose 0.1%, or $1, on Tuesday to $1,214.80 per ounce at 18:22 GMT. The minor gain is the first one for the yellow metal in nine trading sessions.

Last month, gold prices declined $81 per ounce, Sesame Street Bounce House or 7%, to $1,214.80. This means gold posted its first monthly loss for the first time this year. On May 2, gold futures closed at $1,295.80, a 15-month high.

Silver prices also fell by 10.2% in May to $16.08.

The yellow metal has taken a beating since it was revealed that the Federal Reserve may raise interest rates in June. Minutes released from the April 26–27 meeting by the Federal Open Market Committee (FOMC) showed that policymakers were open to a rate hike because of positive economic data and the US reaching its inflation target rate of 2%.

Fed Chair Janet Yellen said on Friday at Harvard University that it would be an “appropriate” time to gradually raise the overnight interest rate over a period of time.

It’s appropriate, and I’ve said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate.

These remarks caused gold prices to dip 0.5% immediately afterwards. The Fed is scheduled to meet in mid-June, and Yellen will deliver her semiannual monetary policy testimony to Congress June 21–22.

Increases to interest rates tend to reduce demand in dollar-priced precious metals, while boosting interest for US dollars. Rate hikes also negatively affect gold because commodities do not provide interest and investors seek out higher yields in an environment of rising interest rates.

Positive US economic data have also hurt gold. It was reported on Tuesday that consumer spending in April had its largest increase in nearly seven years. On Wednesday, it was revealed that S&P/Case Shiller composite index of single-family home prices in 20 metropolitan areas spiked 5.4% in March on a year-over-year basis. All 20 metro areas presented modest or significant gains in March.

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