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Mobius says gold to gain in 2017 as Fed goes slow on rate hikes

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Gold is set to advance by as much as 15 per cent before the end of next year as the Federal Reserve goes slow on increasing interest rates and the US dollar remains subdued, buoying bullion demand, according to Templeton Emerging Markets Group.

[MUMBAI] Gold is set to advance by as much as 15 per cent before the end of next year as the Federal Reserve goes slow on increasing interest rates and the US dollar remains subdued, buoying bullion demand, according to Templeton Emerging Markets Group.

"The Fed is going to increase the rates by a little bit but not excessively and there is no guarantee that a rise in interest rates will put people off," Executive Chairman Mark Mobius said in an interview at a Bloomberg event in Mumbai. 

"A lot will depend on the real rates."

Bullion has rallied 19 per cent in 2016 as concern over the health of the global economy, loose monetary policies and the UK's vote to leave the European Union fanned demand.

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After raising rates last December for the first time in almost a decade, Fed policy makers have stood pat on borrowing costs in the six meetings since. While the US dollar gained to the highest since March on Friday on speculation that rates may soon climb, it remains lower this year.

"The US dollar is not that strong and may even decline," said Mr Mobius, who also highlighted prospects for increased central bank buying of bullion.

"So if that happens, gold gets more expensive."

Gold for immediate delivery traded little-changed at US$1,266.46 an ounce at 7:26am in Singapore after rising last week, according to Bloomberg generic pricing. It surged to US$1,375.34 in July following the aftermath of the Brexit vote in the UK, the highest since March 2014.

While Fed funds futures show the odds of a rise in December have climbed, investors are still plowing funds into gold-backed exchange-traded funds, with holdings at the highest in more than three years. The probability of a hike in December is now about 68 per cent, from 59 per cent at the start of this month.

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