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Why Is Gold Taking a Sharp Fall?

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Kick-start to 2016

Gold had an excellent kick-start to 2016 with the added incentives of safe-haven bids. At the start of the year, the unrest in China and concerns over the growth and performance of its economy set the markets roiling, which buoyed gold. Mid-year, gold took a joyride on the back of the Brexit vote in June.

Gold has risen about 25% this year through September. But the recent strength in the US dollar has sent gold in the opposite direction. Gold futures for December expiration have fallen a whopping 4.5% over the trailing five days. Silver, platinum, and palladium have followed gold’s lead, falling 7.7%, 5.9%, and 6.2%, respectively.

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Fed fears to linger

On Tuesday, October 4, 2016, gold fell for the sixth consecutive day. It hit its lowest in more than two weeks after upbeat US manufacturing data stoked expectations that the Federal Reserve would probably hike interest rates by the end of the year and drive the dollar higher.

Sharp retreat

Almost all mining shares have fallen recently. The biggest losers on Tuesday, October 4, 2016, were Kinross Gold (KGC), Iamgold (IAG), Barrick Gold (ABX), and Yamana Gold (AUY). These four companies fell 13.1%, 12.2%, 11.2%, and 13.0%, respectively. Combined, they make up about 14.8% of the changes in the VanEck Vectors Gold Miners ETF (GDX). GDX fell a whopping 9.9% on Tuesday.

Due to heavy losses in the precious metals sector, mining funds such as the Sprott Gold Miners ETF (SGDM) and the Global X Silver Miners ETF (SIL) have seen five-day trailing losses of 13.3% and 12.7%, respectively.

In the next part of this series, we’ll look at the effect of an interest rate hike on gold.

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