2016 IRA Contribution Rules

The deadline to make IRA contributions for tax year 2016 is April, 18 2017. The maximum contribution is $5,500 per individual ($6,500 if age 50 or over) or 100 percent of earned income, whichever is less.

There are income limits which determine whether you can deduct your Traditional IRA contribution or if you qualify to make a Roth contribution. The following table gives the phase-out range for the most common circumstances.

Do you qualify to deduct your Traditional IRA contribution?
If your income is less than the beginning of the phase-out range, you qualify. If your income is over the phase-out range, you do not. If your income falls inside the range, you partially qualify.

Modified Adjusted Gross Income Phase-Out Range
Tax Filing Status For 2016 Contributions For 2017 Contributions
Single, participates in an employer-sponsored retirement plan: $61,000 – $71,000 $62,000 – $72,000
Married filing jointly, participates in an employer-sponsored retirement plan: $98,000 – $118,000 $99,000 – $119,000
Married filing jointly, your spouse participates in an employer-sponsored retirement plan, but you do not: $184,000 – $194,000 $186,000 – $196,000

Do you qualify to contribute to a Roth IRA?

Modified Adjusted Gross Income Phase-Out Range – Roth
Tax Filing Status For 2016 Contributions For 2017 Contributions
Single: $117,000-$132,000 $118,000-$132,999
Married, filing jointly: $184,000-$194,000 $186,000-$195,999

If your filing status differs from those listed above, please contact your advisor and he or she can help you determine whether you qualify.

Harli Palme, CFA, CFP®
Partner

Harli Palme

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2016: Year in Review

While the year hasn’t officially wrapped up as of this writing, we’re close enough to be able to form some opinions and offer some perspective on 2016.  If nothing else, this year could be characterized as unexpected.  Despite a steep stock sell-off in January, which weighed on investors’ outlooks early in 2016, U.S. stock returns are poised to close up over 10 percent through December.  On the other hand, bond returns, while on target to gain about 2 percent for the year, are finally starting to come under pressure after a bull market of over 30 years.

Looking back, the S&P 500 Index fell over 6 percent in January after U.S. GDP growth came in below expectations, corporate earnings continued to fall, and recession fears spiked.  Despite investor concerns, most economic data at home were relatively healthy, driven primarily by steady gains in employment and disposable personal income.  Additionally, many investors were concerned that slowing global growth would ultimately weigh on a resilient U.S. economy.  Specifically, the International Monetary Fund (IMF) lowered its global growth rate predictions several times, China delivered GDP growth below expectations, and commodity prices remained depressed.

Stocks turned a corner in March, however, surging almost 7 percent at home and over 13 percent in developing countries.  The state-side rally came amid falling U.S. corporate earnings that were driven by lower energy prices, depressed commodity prices, and a strong dollar.  Although declining earnings growth usually leads to lower stock prices, the Federal Open Market Committee’s (FOMC) announcement that it would reduce the number of interest rate hikes for the year buoyed stock valuations.  As a result, stock price-to-earnings multiples (a common valuation metric) expanded while underlying fundamentals remained weak.

After several years of underperformance, emerging markets stocks and bonds reversed course in 2016 as depressed commodity prices started to recover.  The FOMC’s plan for fewer interest rate hikes was also a boost for emerging markets countries, many of which owe significant amounts of U.S. dollar-denominated debt.  Likewise, economic data out of China were better than expected, although growing debt levels and excessive government stimulus there could prove to be longer-term risks.

In another unexpected development, low-growth telecom and utilities sectors led U.S. stocks in the first half of the year.  Utilities and telecom stocks typically carry higher debt levels and the FOMC’s move to keep interest rates lower for longer was viewed favorably by the markets.  Both sectors were up over 20 percent through June, although they have since given back almost half of those gains.

In between tragic terrorist attacks, the U.K. shocked the world in June when it voted to exit the European Union, a development known as “BREXIT.”  Markets tumbled on the news but quickly bounced back and reached new highs.  While shocking headlines dominated the popular press, global economic growth was quietly stabilizing around the globe and accelerating at home.

The summer brought a much-needed reprieve from the barrage of grim headlines earlier in the year.  It also ushered in new confidence in the U.S. expansion as jobs growth continued, wage growth perked up, and housing data improved.  As the Presidential election drew near, corporate spending started to pick up, oil prices rallied, and company earnings improved.

Following a relatively calm summer, the U.S. surprised the world in November with the election of Donald Trump to the presidency, while Republicans maintained their majorities in the House and Senate.  Despite concerns of a global shift towards populism, markets soared on hopes of tax cuts and better growth at home.  After the election and following months of healthy economic data – – including a meaningful pick-up in 3rd quarter U.S. GDP growth and signs that inflation was heating up – – the FOMC raised rates in December, as expected.

Clearly, 2016 was an eventful year for markets, governments, and citizens alike.  While several unknowns have become known, many of this year’s developments have sowed the seeds for more uncertainty ahead.  In terms of markets, although a divide still exists between stock valuation levels and underlying fundamentals, we’re encouraged by improving corporate earnings growth.  On the other hand, bonds have benefited from over thirty years of falling yields (and thus rising prices).  A steeper FOMC rate hike trajectory is clearly a headwind for fixed income, but the central bank’s stance is supported by strong economic growth and signs of inflation.  The end result may mean stagnant fixed income returns, but a healthy economy – a trade-off we’re willing to take.

Overall, we view stocks as most likely to outpace growing inflation expectations over the long term.  While equity prices may be due for a pullback in the near term, evidence suggests that the longer-term secular bull market remains intact.

Thank you,

The Parsec Team

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Parsec’s Holiday Schedule


The holiday season is quickly approaching! While we plan to be here for all your year-end needs, we also look forward to spending a little extra time with friends and family. So that we can enjoy time with loved ones, our office will be closed for certain holidays. Please review our schedule below so that you can plan office visits and gifting request accordingly.

  • Thanksgiving: Our office will be closed on Thursday, November 24 and Friday, November 25, 2016.
  • Christmas: Our office will close at 1:00 p.m. on Friday, December 23 and all day on Monday, December 26 in observance of the Christmas holiday.
  • New Year’s Day: Our office will be closed on Monday, January 2, 2017.

The closures apply to all offices located in Asheville, Charlotte, Southern Pines, and Tryon.  Some employees may be planning to take a little extra time off around the holidays, but someone from your advisory team will always be here to help you!

For a little fun reading this season, make sure to check out our new holiday edition newsletter. The cranberry sauce looks tasty! We hope you enjoy time with your loved ones and have a safe, happy holiday season.

Happy Holidays!

ashley_woodringb

Ashley Gragtmans, CFP®

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What’s Up (or down) with Inflation?

Inflation isn’t exactly a hot topic these days, although the lack of it might be.  Despite aggressive monetary policy by the U.S. Federal Reserve (Fed) since the Financial Crisis, prices are relatively flat.  Along with increased money supply, a generally healthy economy and an improving employment picture would suggest higher prices.  So why is inflation depressed?

Inflation is defined as a sustained increase in the general level of prices for goods and services.  Basically, inflation happens when too much money is chasing too few goods or services.  While the Fed’s bond buying operations since 2009 have dramatically increased the amount of money in circulation, most of it has not reached consumers who would be most likely to spend it.  Instead, much of the cash generated by the Fed remains with large commercial banks that are unwilling to lend.

Steep losses tied to easy lending standards caused bankers to clamp down on loan issuance after the housing bubble burst.  Credit standards are finally starting to loosen, but many banks remain conservative when it comes to issuing new loans.

Another factor that may be preventing more money from reaching consumers is tied to legislation introduced in 2008 that allows the Fed to pay interest on excess bank reserves.  Historically, bank reserves held at the Fed did not earn interest.  A lack of return on reserves motivated banks to put their excess capital to work by issuing new loans.  However, now that banks can earn a very safe return on their reserves with the Fed, they are lending less.  While historically there has been a strong correlation between the US monetary base and inflation, that relationship has weakened following the new legislation.  From 2005 to 2015 while the monetary base rose at an annual rate of 17.8%, inflation expanded by only 1.9%.

But banks aren’t the whole picture.  Oil prices, which comprise roughly 8% of the Consumer Price Index (CPI), have plunged since July 2014.  Excluding oil and food, core CPI was actually up about 2.2% year-over-year in July.  But this is still below the long-term inflation average of 3.8% since the end of World War II.

Many argue that recently healthy jobs gains should fuel demand for goods and services and thus push prices higher.  While it’s true that the U.S. has added an average of 3 million jobs in each the last two years, consumers have only recently started to loosen their purse strings.  Since the Financial Crisis, many have instead focused on saving and paying down debt.  At the same time, flat wage growth has hindered spending.  But this is starting to reverse and the combination of high employment levels and now rising wages should support consumer spending and in turn, could add to upward pressure on the inflation rate. Of course, for inflation to pick up substantially would require accommodating increases in the money supply from the Federal Open Market Committee.

Finally, weaker global economic growth and a strong U.S. dollar have been headwinds for domestic inflation.  Our economy is one of the strongest in the world and the U.S. dollar has appreciated compared to many other currencies as a result.  This means that foreign currencies have declined relative to the U.S. dollar and the prices of imported goods are getting cheaper.  In order to compete with foreign goods, domestic companies have generally lowered their prices, putting downward pressure on inflation.  This phenomenon is known as “importing inflation”.

While there may be other factors responsible for low inflation, it’s worth noting that the current environment is generally positive for consumers and investors.  Low, but steady inflation levels – all else being equal – means lower grocery and gas bills, as well as higher real investment returns.  Inflation is often one of the biggest headwinds to achieving adequate portfolio returns.  Rising prices can eat into an investor’s real return and delay the achievement of financial goals.  But in this low-yield environment, low inflation is a benefit to investment portfolios which will have a better chance of delivering returns that outpace prices for goods and services.

To be sure, the current low-inflation environment may not last.  As with many trends, inflation may return to average or even above-average levels in the future.  We are starting to see wage income rise, consumers have increased their spending levels recently, and oil prices have rebounded year-to-date.  Rising inflation can erode portfolio returns and spending power, but modest, steady price gains are also associated with healthy economic growth in which consumers are spending, businesses have pricing power, and wages are growing.

Carrie A. Tallman, CFA
Director of Research

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Interesting Tidbit On Unclaimed Property

More people than you might expect are owed money and don’t even know it. Many different types of assets are escheated to the state for a variety of reasons. An individual might move – perhaps several times – and forget to update his or her address with all vendors. Funds may then be mailed to a previous address and subsequently be returned to the sender. The company will usually attempt to locate the individual; however, unclaimed funds will eventually be surrendered to the state. Alternatively, when family members pass away, assets are often left unclaimed or not cashed, so they are returned.

I have used the below website many times while working with clients or estates. Take a couple of minutes to check it yourself. Maybe you will find only enough extra cash for an ice cream cone, or perhaps it will be enough for a vacation. It is very easy to claim your cash.

https://www.nctreasurer.com/Claim-Your-Cash/Claim-Your-NC_Cash/Pages/Search.aspx

Vicki Oxner, RP®
Receptionist

Vicki Oxner - Parsec Financial Photo Shoot

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10 ways to celebrate Independence Day:

Visit a historical site:

Western North Carolina is rich in history. One of my family’s favorite locations is Cherokee. In particular, we like to visit the Oconaluftee Indian Village. We always enjoy walking the trials and making new friends. Staff members are eager to share stories and have live demonstrations on how the early Cherokee people made jewelry, clothes, weapons, shelters, and canoes. We always seem to learn something on our trip back through time.

Read the Declaration of Independence

While many of us can recant passages of the document such as, “We hold these truths to be self evident,” how many of us have read or can recall the 27 grievances in the original writing leading to the declaration?

Get active – go for a hike, fishing, or camping:

Did you know that WNC has some of the arguably best trout fishing in the state? We have well over 3,000 miles of trout streams and each year the Wildlife Commission closes 1,000 miles for restocking and delayed harvesting. Currently, fishing season is wide open with a 7 daily keeper limit.

Make it memorable:

Consider investing in a decent photo or video camera. We took the plunge a few years ago and bought both types of cameras. We have a lot of fun capturing memories. Occasionally, we will look back on these priceless photos and videos to relive the moment and found this to be a great pass time. One of the things I like to do is compile short video clips and then set them to music; this makes a great way of preserving memories in a fun and engaging way.

Pack a picnic and watch the fireworks:

Admit it, many reading this cannot recall the last time they sat on a blanket and enjoyed a picnic dinner. How about trying a new recipe or pick up a box of fried chicken while picking out the perfect viewing area? Don’t forget to pack a frisbee to toss around. Looking for fireworks? Find them here!

Treat a veteran to lunch or dinner:

What better way to honor our nation’s heroes by treating them to a lunch? We see active duty servicemen and women at restaurants near the Asheville airport. Something we like to do is anonymously pay for their meal.

Make a difference:

Everyone has something they are passionate about. Why not take this passion and introduce it to someone new? For instance, an outgoing person might go to a nursing home and visit a resident. Someone who enjoys soccer could visit a local park and start a pick-up game.

Throw an Independence Day themed BBQ:

On a recent visit, the client arranged for a catered Low Country Boil as incentive for his staff to stay after hours for my education presentation and one-on-one meetings. This was my first boil and I was impressed at the simplicity of the food and great conversations. So much so, this inspired my family to invite a few good friends over for our first boil this summer! (If any have advice about how to make this go off without a hitch, please email me with your thoughts and suggestions.)

Watch the local 4th of July parade:

Remember when you were a kid and watched the parade? The nostalgia of candied apples, popcorn, marching bands, and waving the American flag just oozes fun and happy memories! It just doesn’t get much better.

Declare your independence, financially that is:

The Declaration of Independence is roughly 1,400 words. Financial independence does not require a formal “declaration” per se, but it does require a well thought out plan.   Just as our forefathers were resolute in their desire for independence, our decision to save and invest for our future should be a high priority. Things that should be considered are having adequate cash reserves, health, life and disability insurance, long-term savings and investments, and estate planning documents to name a few. The internet has a wide variety of tools and resources that may be helpful. However, the advisors at Parsec take a unique and tailored approach for client recommendations and advice. More importantly, our advice is consistent whereas information on the internet will vary. Our belief is that with proper savings, planning, and investment oversight most people can achieve financial independence. If you have questions or concerns that you would like us to address, please call or write.

I hope everyone has a happy and safe 4th of July!

Neal Nolan, CFP®, AIF®
Senior Financial Advisor
Director of ERISA Services

Neal

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Market Update Through 03/31/2016

as of March 31, 2016
Total Return
Index 12 months YTD QTD March
Stocks
Russell 3000 -0.34% 0.97% 0.97% 7.04%
S&P 500 1.78% 1.35% 1.35% 6.78%
DJ Industrial Average 2.08% 2.20% 2.20% 7.22%
Nasdaq Composite 0.55% -2.43% -2.43% 6.94%
Russell 2000 -9.76% -1.52% -1.52% 7.98%
MSCI EAFE Index -8.27% -3.01% -3.01% 6.51%
MSCI Emerging Markets -12.03% 5.71% 5.71% 13.23%
Bonds
Barclays US Aggregate 1.96% 3.03% 3.03% 0.92%
Barclays Intermediate US Gov/Credit 2.17% 2.58% 2.58% 0.75%
Barclays Municipal 4.38% 1.84% 1.84% 0.35%
Current Prior QTR
Commodity/Currency Level Level
Crude Oil  $38.34  $37.04
Natural Gas  $1.96  $2.34
Gold  $1,235.60  $1,060.20
Euro  $1.13  $1.08
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My Introduction to the New York Stock Exchange

Wendy Beaver is a financial advisor in our Southern Pines office.  She got her start on Wall Street and we wanted to know what her experience was on the NYSE.  Here is what she had to say:

As a former Head Equity Trader of NationsBank and a former Manager of Business Development of Prime Executions, a firm on the Floor of the New York Stock Exchange, I spent many years closely involved with the workings of the NYSE. It all started in the early 1980s, when I was a junior equity trader at InterFirst Bank in Dallas, Texas. For many years, The New York Stock Exchange held a program to introduce up and coming people in equity trading to the NYSE, called the FACTS Program. An invitation to attend this day long program was coveted among my peers. When I received my invitation, I was honored, and, I must admit, a little nervous at the thought of spending a whole day at the venerable New York Stock Exchange.

As it turned out, that day began a life long love and respect for the New York Stock Exchange, whose history began with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants on May 17, 1792, outside at 68 Wall Street under a Buttonwood tree. Twenty-five years later, on March 8, 1817, the organization officially became the New York Stock Exchange Board, later simplified to the New York Stock Exchange. The location changed several times over the years before settling into its present locational 11 Wall Street in 1865. The Neo-Classical building was registered as a Historic Landmark in 1978.

A few years after this important registration, I was there attending the FACTS Program. The day started with an introductory meeting outlining the days events, after which my fellow attendees from throughout the country and I were taken to the NYSE Trading Floor. My first stop was at the post of a Specialist firm. The Specialist was a member of the NYSE, whose role was to maintain a fair and orderly market in his inventory of stocks listed on the New York Stock Exchange. They had actual long and narrow books with lined pages where the existing buy and sell interest was written at particular prices. If there were no actual client interest, the Specialist firm had to use their own capital to facilitate the trade. It was fascinating to me to observe as the Floor Brokers approached the Specialist post, checked the book up and down and began negotiating their order.

The next stop was to be assigned to a Floor Broker, who could be employed by a member firm of the  NYSE (Merrill Lynch, Paine Webber, etc.), or be an independent $2 Broker representing many member firms. Their role was to execute the orders from the clients of those firms. The Floor Broker picked up the order from his clerk in his firm’s booth around the perimeter of the Trading Floor. Buy orders were written on green tickets and sell orders were written on pink tickets. Then the Floor Broker walked very quickly(running was prohibited) to the Specialist post where that stock was traded. After negotiating with the Specialist and executing the order, the Floor Broker tore the ticket off the pad and threw it on the floor. At the end of the day, paper tickets were knee deep on the Trading Floor! The Floor of the New York Stock Exchange was the busiest and most exciting place I had ever been. Through human communication and interaction, a large majority of the equity trades that took place in this country were executed there.

The rest of the day was spent with lunch in the Stock Exchange Luncheon Club, a wood-paneled dining room that served members of the NYSE and other Wall Street professionals from 1898 until it closed in 2006, and a visit to the Boardroom of the NYSE, which held a rostrum from the original floor from the early 1800’s and the urn given as a gift to the New York Stock Exchange by Czar Nicholas II of Russia in 1904. ( I was fortunate enough to return to the Boardroom quarterly from 1994 to 1997, when I was asked to be a member of the Institutional Traders Advisory Committee to the Board of the New York Stock Exchange.) A closing reception was held for us in the Luncheon Club at the end of the day.

The bull markets of the 1980s and 1990s shattered all trading records. In fact, volume topped 2 billion shares a day in 2001. Although the NYSE upgraded its technology constantly over the years to meet the increasing volume, this amount of volume presaged changes to come. In 2005, the New York Stock Exchange merged with Archipelago, the first all-electronic exchange in the United States. In 2006 the NYSE ArcaEx merger created NYSE Arca and formed the publicly owned and traded for profit NYSE Group, Inc. In turn, NYSE Group merged with Euronext, creating the first trans Atlantic stock exchange group. In 2008, Specialist firms became Designated Market Makers. Finally, on December 20, 2012, Intercontinental Exchange, an American Futures Exchange, bought NYSE Euronext.

In October 2014, my Parsec colleague Greg James and I visited the NYSE Floor. It is a much quieter place now, with Floor Brokers working from trading desks with Designated Market Makers, often using hand held computers. Today more than half of all NYSE trades are conducted electronically, and Floor Traders are used to set prices and deal in high volume institutional trading. It is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities. That being said, I still got that same awe-inspiring feeling walking onto the Trading Floor with Greg that I got many years ago walking onto the Trading Floor as a junior trader at the New York Stock Exchange for the first time.

Wendy S. Beaver, AAMS®
Financial Advisor

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Medicare Jump

As a result of low inflation during the past year, it appears that there will not be a Cost of Living Adjustment (COLA) applied to 2015 Social Security Benefits for the 2016 year. This is only the 3rd time in the past 40 years this has occurred. Because there will be no 2016 COLA, it enacts an obscure provision in the Medicare laws which prevents Medicare premium increases in a year in which there is no COLA. However, Medicare is required to pay for a part of its funding through beneficiary premiums. This means that approximately 70% of Medicare beneficiaries will be “held harmless” and will not experience a premium increase. However, the other 30% made up of non-exempt beneficiaries and new enrollees will endure all of the premium increases.

For tax year 2014, those whose modified adjusted gross income (MAGI) is greater than $85,000 filing as individuals or $170,000 filing as couples do not fall in the “hold harmless category” and are subject to premium surcharges on a graduated scale from 42 percent to more than 200 percent (see below chart). Others not protected by the hold-harmless rule include those who do not have Medicare Part B premiums deducted from their Social Security benefits. This includes individuals who are delaying Social Security benefits even if they are enrolled in Part B — e.g., many who elect to delay or “file and suspend” their Social Security benefits. Those individual’s Medicare Part B premiums may increase regardless of family income.

Medicare Jump-table

These are huge premium increases, and we recognize that this will have a major impact on many of our client’s annual medical spending. The good news is that the Medicare Trustees anticipate this increase to be a one-year phenomenon with premiums returning to a normalized level in 2017. However, we anticipate that increases in Medicare premiums will rise faster than COLA increases provided by the Social Security Administration over the coming years. For this reason, we plan with our clients for medical costs rising faster than broad market inflation to ensure that they will have adequate spending power necessary to maintain a high level of medical care. If you have questions about your own Medicare coverage, let your advisor know. Medicare is an important part of every retirees financial plan.

Daniel Johnson III, CFP®
Financial Advisor

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Market Update through June 30, 2015

as of June 30, 2015
Total Return
Index 12 months YTD QTD June
Stocks
Russell 3000 7.29% 1.94% 0.14% -1.67%
S&P 500 7.42% 1.23% 0.28% -1.94%
DJ Industrial Average 7.21% 0.03% -0.29% -2.06%
Nasdaq Composite 14.44% 5.90% 2.03% -1.56%
Russell 2000 6.49% 4.75% 0.42% 0.75%
MSCI EAFE Index -4.22% 5.52% 0.62% -2.83%
MSCI Emerging Markets -5.12% 2.95% 0.69% -2.60%
Bonds
Barclays US Aggregate 1.86% -0.10% -1.68% -1.09%
Barclays Intermediate US Gov/Credit 1.68% 0.82% -0.62% -0.60%
Barclays Municipal 3.00% 0.11% -0.89% -0.09%
Current Prior QTR
Commodity/Currency Level Level
Crude Oil $59.47 $47.60
Natural Gas $2.83 $2.64
Gold $1,171.80 $1,183.20
Euro $1.11 $1.07
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Market Update through 3/31/2015

as of March 31, 2015
Total Return
Index 12 months YTD QTD March
Stocks
Russell 3000 12.37% 1.80% 1.80% -1.02%
S&P 500 12.73% 0.95% 0.95% -1.58%
DJ Industrial Average 10.57% 0.33% 0.33% -1.85%
Nasdaq Composite 18.12% 3.79% 3.79% -1.17%
Russell 2000 8.21% 4.32% 4.32% 1.74%
MSCI EAFE Index -0.92% 4.88% 4.88% -1.52%
MSCI Emerging Markets 0.44% 2.24% 2.24% -1.42%
Bonds
Barclays US Aggregate 5.72% 1.61% 1.61% 0.46%
Barclays Intermediate US Gov/Credit 3.58% 1.45% 1.45% 0.49%
Barclays Municipal 6.62% 1.01% 1.01% 0.29%
Current Prior QTR
Commodity/Currency Level Level
Crude Oil $47.60 $53.27
Natural Gas $2.64 $2.89
Gold $1,183.20 $1,184.10
Euro $1.0740 $1.2100
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