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Gold Prices Fall Again as Janet Yellen Suggests a 2015 Rate Hike

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Gold retreats

Gold futures on COMEX, a commodity division of the New York Mercantile Exchange for December delivery, fell 0.71% and closed $1,145 lower than the previous close. Gold futures were trading at a price of $1,153.8 as of September 24. The delay in the rate hike after the Federal Reserve policy-setting meeting had offered hopes to gold lovers as gold prices surged. Gold futures that traded near a five-year low fell the most in two weeks on Friday on Yellen’s comments and a report showing faster-than-estimated US growth. The data boosted prospects for the first monetary tightening since 2006. This tightening would cause gold to lose its lustre, as interest-bearing Treasuries could become more favorable for investors.

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Tracking ETF investments and mining stocks

Gold-backed investments like the Sprott Gold Miners ETF (SGDM) and the VanEck Vectors Jr. Gold Miners ETF (GDXJ) had positive returns the day prior to Yellen’s comments on US growth. Both these ETFs had gained 6.85% and 5.11%, respectively, on September 24. Mining stocks like Agnico-Egle Mines (AEM), First-Majestic Silver (AG), IamGold (IAG), and Silver Wheaton (SLW) had also surged on September 24, backed by the rise in the precious metal’s price. These four stocks make up ~11.5% of the VanEck Vectors Gold Miners ETF (GDX).

Janet Yellen addressed an audience at the University of Massachusetts last Thursday evening, claiming that a rate hike could be expected before the end of the year. The FOMC (Federal Open Market Committee) has two more scheduled meetings left in 2015 to make its liftoff move, one in October and one in December—as long as inflation remained stable and the US economy is strong enough to boost employment. As Yellen kept the doors for the liftoff open in the current year, she sparked the rise in the dollar.

The strengthening dollar could hamper investments in gold, as gold is a dollar-denominated precious metal. The higher the value of the greenback, the more expensive it gets to invest in gold. Also, the non–interest-bearing status of gold will likely add to the downfall in prices.
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