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Gold bounces back, but maybe not for long

Published: 11:15 26 May 2016 EDT

Gold bar and US dollar bills

After six days of losses, gold finally started to shine again as it ended its longest run of daily losses since November.

The metal is looking to bounce back after hitting a seven-week low just a couple of days ago.

Despite climbing up past the US$1,030 benchmark, the metal is still set for its biggest monthly drop for more than six months.

Speculation has mounted over the last week or two that the Federal Open Market Committee (FOMC) will raise US interest rates.

In its April meeting minutes released last week, the Fed said it would likely increase rates in June if the economy continued to show signs of improvement.

US unemployment figures out today seemed to confirm the general thought that the US economy is showing signs of improvement.

The data showed that fewer Americans were unemployed than had been previously estimated, which would indicate a recovering economy and healthy labour markets.

If the Fed does raise interest rates, it would strengthen the dollar and increase the opportunity cost of holding non-yielding bullion which would probably lead to fall in the price of the precious metal.

Speaking to Bloomberg, Dominic Schnider, head of commodities and foreign exchange at UBS Group AG’s wealth management unit in Hong Kong, thinks multiple rate rises are on the cards for 2016.

“Definitely second half of the year, we’re going to get two hikes – that’s not fully priced in, and that’s why most dollar strength’s to come,” Schnider said.

He added: “Some people are going to get caught on the wrong side. Gold is going to roll over, we’re going to fall back to US$1,150 and so be ready for more weakness in the short term.”

Near the end of London trading, gold was up US$2 to US$1,226, silver was up 11c to US$16.40, and platinum was also up US$4 to US$993. 

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