Gold Weighing Heavy on the Markets

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The Federal Reserve’s decision on whether to raise interest rates is weighing heavy on the gold markets. It’s expected that we’ll see another rate hike before the end of 2016, and that is causing the yellow metal to slump in both the cash and futures market.

The reason that gold becomes undesirable is simple; rising interest rates lower the opportunity costs of holding gold because the metal provides no yield. This in turn entices investors away from the metals markets, and into riskier assets like stocks. And this is definitely the behavior that we are seeing now.

Going forward the outcome of the Fed’s latest meeting will be crucial in determining the short term future of gold. That said, we are expecting that rates will stay at current levels for the time being, prompting the price of gold to stage a recovery. Consequently, we are going long in the markets for the foreseeable future.

Gold has been creating a longer term bull flag with highs currently around 1384. Breaking those levels will show potential for the next leg up to around 1510.

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