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Gold extends rally from six-year lows, as investors await inflation data

Published Dec 21, 2015 12:39PM ET Updated Dec 21, 2015 01:02PM ET
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Gold surged nearly $15 an ounce on Monday to close at $1,080
 
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Investing.com -- Gold futures rose sharply extending gains from late last week, as investors await the release of inflation data later this week for further indications on the gradual path of policy tightening the Federal Reserve plans to take over the next year.

On the Comex division of the New York Mercantile Exchange, gold for February delivery traded in a broad range between $1,063.10 and $1,079.80 an ounce before settling at $1,080, up $14.90 or 1.40% on the session. Last Friday, gold rallied nearly 1.5% rebounding from a daily loss of $25 an ounce a session earlier after the Fed approved its first rate hike in nearly a decade. With the sharp gains over the last two sessions, gold has bounced from near six-year lows earlier last week when it traded around $1,050 an ounce. Since peaking around $1,185 an ounce in mid-October, the precious metal is down nearly 9%.

Gold likely gained support at $1,046.20, the low from Dec. 3 and was met with resistance at $1,109.50, the high from Nov. 6.

Investors continue to digest last week's historic decision by the Federal Open Market Committee (FOMC) to raise short-term interest rates for the first time since June, 2006. Citing improved labor market conditions and expectations that long-term inflation will move back toward its 2% objective, the FOMC increased the target range on its benchmark Federal Funds Rate by 25 basis points to a level between 0.25 and 0.50%. The Federal Funds Rate previously remained at record-lows in a zero-bound range for seven consecutive years since the height of the Financial Crisis.

Gold, which is not attached to dividends or interest rate, struggles to compete with high-yield bearing assets in rising rate environments.

Following the historic announcement, Fed chair Janet Yellen faced a barrage of questions on how the FOMC could respond to changes in inflationary pressures as it normalizes monetary policy. Echoing sentiments from September, the FOMC does not project that long-term inflation will reach 2% until the end of 2018. While Yellen noted that market-based measures of inflation compensation remain near historically-low levels, she emphasized that the declines over the past 18 months may reflect changes in "risk and liquidity premiums, rather than an outright decline in inflation expectations."

Inflation has remained under the Fed's targeted goal for every month over the last three years.

When the U.S. Department of Commerce releases its monthly Personal Consumption Expenditures Index on Wednesday, analysts expect few changes in November, amid modest increases in personal income and consumer spending. Sharp declines in oil prices are expected to weigh heavily on the PCE Price Index, while Core PCE prices are expected to inch up by 0.1% on the month. The Core PCE Index, the Fed's preferred gauge for long-term inflation, strips out volatile food and energy prices. On Monday, North Sea brent crude futures nearly hit $36 a barrel, plunging to its lowest level in 11 years. On a yearly basis, core PCE prices were up by 1.3% in October, remaining flat from the previous month's reading.

Elsewhere, The People's Bank of China increased its daily fix for the yuan on Monday, halting a 10-day streak of weakening versus the dollar that pushed the renminbi to its lowest level against the greenback in four years. China is the world's largest purchaser of gold and the world's second-largest consumer of the precious metal behind India.

The U.S. Dollar Index, which measures the strength of the greenback against a basket of six other major currencies, fell by more than 0.35% to an intraday low of 98.30. Earlier this month, the index eclipsed 100.00, reaching its highest level on the calendar year.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for March delivery gained 0.184 or 1.31% to close at 14.295 an ounce.

Copper for March delivery added 0.028 or 1.33% to settle at 2.140 a pound.

Gold extends rally from six-year lows, as investors await inflation data
 

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