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Gold’s Glitter Fades amid Looming Fed Rate Hike

August 30, 2016 at 17:34 by Andrew Moran

Gold and silver futures tumbled on Tuesday as investors are preparing for a likely interest rate hike from the Federal Reserve next month. Traders are gradually walking away from the safe haven assets into riskier investments as the US central bank gets ready to initiate its second rate hike in a year.

December gold futures slipped $9.40, 0.71%, to $1,317.70 per ounce at 17:06 GMT. Gold has not traded this low since the middle of July.

Silver futures are also plummeting on Tuesday. September silver futures dipped $0.18, or 1.00%, to $18.58 an ounce. Silver prices have not been this low since prior to Brexit, when most of the market believed that Britons would vote to Remain in the European Union (EU).

Although gold and silver prices have been lackluster as of late, the precious metals continue to have a good 2016. The yellow metal is up 23% this year, while silver is still up more than 40%.

Last week, Fed Chair Janet Yellen averred that the case for a rate hike has “strengthened” because of strong domestic economic data. If the August jobs report proves to be positive then it could provide the Fed with enough ammunition to give interest rates a boost next month. The monthly labor numbers are set to be released on Friday.

Speaking in an interview with Bloomberg on Tuesday, Fed Vice Chair Stanley Fischer noted that the central bank will not know until after a rate hike if “it is one and done or several. It depends entirely on what happens in the economy.”

The next Federal Open Market Committee (FOMC) meeting will be held on September 20 and 21.

In addition to the increasing odds of a September rate hike, the US dollar has advanced, which has also impacted gold prices.

Traders tend to shun precious metals because they do not offer up any yield in an environment where interest rates go up. Also, it becomes more expensive for foreign investors to own dollar-denominated precious metals.

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

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