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Published On: Fri, Sep 12th, 2014

Gold slumps to 8-month low on Fed monetary tightening fears

Bullion continued its losing streak on the Comex division of the NY Mercantile Exchange and silver did likewise, as a survey fueled bets the Fed may signal a rate hike on its policy meeting next week.

Gold continued its losing streak on the New York Mercantile Exchange, as a survey fueled bets the Fed may signal a rate hike on its next meeting.

On the New York Mercantile Exchange gold for December delivery slumped to an unprecedented level since January 30, touching a daily low of $1,237.80 per troy ounce. In early morning US trade the precious metal recovered some of the losses to trade at $1,243.30. Support for gold futures was likely to be found at $1,225.80, the January 9 low, and resistance at $1,272.60, the September 8 high.

Silver for December delivery plunged by 0.94 percent, trading at $18.74 per troy ounce.

The US dollar continued its outperformance compared to most other major currencies, following the San Francisco Fed study that suggested the central bankers’ expectations of rate hikes outpaced those of investors. The study was published earlier in the week and underscored the possibility for the Fed signaling a rate hike during its policy meeting scheduled for next week. That signal could come as not mentioning the commitment to keep rates low for an extended period of time.

When interest rates are rising, gold storage costs money, and gold struggles competing with yield-bearing assets. In rising interest rates environment, bullion needs to compensate for not yielding interest with a price discount. Otherwise, investors would not have the incentive to buy it.

US data pointed that people receiving unemployment benefits in the US unexpectedly soared last week, hitting a ten-week high. According to the US Department of Labor, people filing for first unemployment assistance increased by 11,000 last week and reached 315,000.

Following President Obama’s authorization of US airstrikes against Islamic State in Syria, the yellow metal’s losses were limited. As Obama underlined on Wednesday, addressing the nation, the campaign of airstrikes would be systematic.

In metals trading, there was a 0.87 percent drop in copper for December delivery, to $3.083 per pound.

According to official data which came out earlier, China’s August inflation was below the expectation of 2.2%, slowing to 2.0 percent; for comparison, the July number was 2.3 percent. Data was weaker than expected, thus heightening concerns about China’s economy and leading to speculations that policymakers will have to bring in new stimulus, so as to meet the 7.5% GDP target. China’s consumption of copper is the most massive on a global scale, amounting to almost 40 percent of worldwide demand.

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