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What Investors Should Know about Gold's Key Drivers

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Part 4
What Investors Should Know about Gold's Key Drivers PART 4 OF 12

How Would a December Rate Hike Drive Gold?

The Fed’s recent meeting

The Federal Open Market Committee’s (or FOMC) two-day meeting ended on November 1, 2017. The committee kept the interest rates unchanged. It has already raised interest rates twice this year. The decision to keep the rates unchanged in November was widely expected by the market. The Fed, however, noted strong US economic growth and strength in the labor market. It also played down the impact of recent hurricanes, stating that they will not have a longer-term impact on economic activity. These comments suggest that the committee is on track for a rate hike in December 2017.

How Would a December Rate Hike Drive Gold?

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The likelihood of a rate hike

An interest rate hike at FOMC’s December 2017 meeting is almost certain. The minutes from the Fed’s September meeting show that the rate hike in December is likely. The committee members are usually of the view that the factors slowing inflation will pass. The Fed also indicated that a third rate hike in 2017 is warranted. According to the CME Fedwatch tool, there is a 97% chance of a rate hike in December 2017.

The Fed’s rate hike and gold

The market is factoring in a rate hike in December 2017, so a quarter-point hike might not move the needle on gold too much. What will be interesting to watch in the meeting will be the Fed’s tone, which could give a clue regarding future rate hikes.

Lower-than-expected rate hikes could benefit gold stocks (GDX) such as Hecla Mining (HL), Yamana Gold (AUY), AngloGold Ashanti (AU), and First Majestic Silver (AG).

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