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Strong Physical Demand Cannot Reverse Gold’s Decline

October 26, 2016 at 17:18 by Andrew Moran

Strong physical demand could not help stop gold’s declines. After reports suggested that there still remains a healthy demand for physical gold and silver, the yellow metal failed to take advantage of the news.

December gold futures slipped $5.20, or 0.41%, to $1,268.40 per ounce at 16:52 GMT on Wednesday. This comes one day after the yellow metal settled at its highest level since October 3. Gold has lost much of its momentum since the Federal Reserve announced in September it would leave interest rates unchanged and hinted that a December rate hike would happen.

Silver has also been tumbling. December silver futures decreased $0.11, or 0.62%, to $17.67 an ounce. Silver has yet to recover since crossing the important $20 threshold.

Overall, gold has risen more than 20% so far this year, while silver has soared roughly 40%.

Gold could not muster any gains after financial analysts reported significant demand in Asia, particularly in India, where they are holding festivals. These festivals often have families hold gold as the centerpiece of celebrations.

The potential declines were due to a strengthening greenback and the likelihood of the US central bank raising rates in December. Gold was also impacted by the recent remarks from Chicago Fed President Charles Evans, who warned that the Fed will raise rates by three quarter-point moves between now and the end of 2017.

The Federal Open Market Committee (FOMC) will hold its next monetary policy meeting on November 1 and 2. It will then hold its final meeting in December, when it will likely boost rates for the first time since December 2015.

According to the CME Group FedWatch tool, there is a 60% chance of a December rate hike. This may change on Friday as the Fed and investors will see the third quarter gross domestic product (GDP) report, which is forecast to rise 2.2% year-on-year. The US economy has only expanded 1.1% in the first quarter and 1.2% in the second quarter.

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