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Precious Metals Drop on Interest Rate Outlook, Palladium Rallies to Record High

December 5, 2018 at 21:08 by Vladimir Vyun

Gold and other precious metals dropped today, dragged down by the outlook for interest rate hikes from the Federal Reserve. Curiously, palladium was an exception, touching the record high during the Wednesday’s trading session.

Last week, Fed Chairman Jerome Powell made remarks that were considered dovish by markets. Yesterday, though, New York Fed President John Williams contradicted the dovish stance of the Fed Chair somewhat, saying that he thinks that the Fed should continue raising interest rates “over the next year or so.” He did not mentioned specific dates, saying:

The timing of exactly when to adjust policy is something we’ll discuss and decide on.

Markets consider a hike in December almost guaranteed, with the CME FedWatch page showing nearly 80% probability of the such an event. Furthermore, chances of another hike in March are just shy of 40%.

Gold and other precious metals usually lose value in a high interest rate environment. Elevated borrowing costs make it less attractive for investors to hold assets, which do not bear yield by themselves.

Contract for delivery of gold in February dropped 0.34% to $1,242.3 per troy ounce as of 20:50 GMT on COMEX today. March silver declined 0.58% to $14.56 per ounce. Spot price for platinum fell 0.66% per ounce. Meanwhile, palladium rallied 0.74% to $1,241.54 per ounce earlier, touching the all-time high of $1,263.56 per ounce earlier, exceeding the value of gold for the first time in about 16 years.

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