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November 24th 2015

U.S. Rate Hikes May Not Be Gold's Biggest Threat - CME Group

As investors shy away from gold given the metal’s continuous decline and imminent U.S. interest rate hike, one senior economist says that there may be a bigger threat to prices: mine supply. 'Those familiar with our research will know that we aren’t especially optimistic about gold in the short term because we think that it’s driven by mining supply to a much greater extent than most people realize, and that mining supply, in our view, is likely to continue growing,' Erik Norland told Kitco News in an interview Tuesday. 'Our perspective on mining supply appears to be in the minority. Many analysts think that gold-mining supply is likely to come down significantly in the next few years. If mining companies begin shutting down production, it would be bullish for gold,' he explained. According to the economist, inflation is also not a major problem ahead and in turn should continue to pressure gold prices. Gold prices saw a modest boost Tuesday morning on safe-haven demand after hitting a 5.5-year low. February comex gold futures were last quoted up $10.50 at $1,077.10 an ounce. According to Norland, historical data still proves that gold remains a great portfolio diversifier and his short-term, apathetic sentiment towards the metal is shared with equities and bonds. 'We wouldn’t be surprised if fixed-income returns are close to zero or even negative, after inflation, over the next decade or so,' he said. 'Equities present a more complex picture… corporate profits aren’t growing very quickly and with the Fed apparently getting ready to hike rates, the cost of capital might begin to increase slightly,' he noted, adding that equities in Europe and Asia, on the other hand, are cheaper and may outperform the S&P 500 in coming years, especially if the U.S. dollar remains strong. Kitco News, November 24, 2015.

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