Gold Price, USD 1810 Eyed

On Monday, the price of gold started off as investors are eyeing a breakout to test the familiar daily resistance near USD 1815. The yellow metal is higher by some 0.3% and has travelled between a low of USD 1781.89 and a high of USD 1791.65.

The start of the week is active ahead of a burst of central bank announcements amid fears about inflation and the economic threats posed by the Omicron variant. The precious metals are customary to such a climate and can avail where volatility and risk-off themes dictate the flows.

With respect to the COVID-19 variant, Omicron, while it has been noted as a concern by the World Health Organization and the U.S. Centers for Disease Control and Prevention, scientists say preliminary data suggests it may cause milder cases of Covid-19 than the delta variant.
News of the first death from the variant is troublesome for risk appetite, supporting the demand for gold. At least one person has died in the UK after contracting Omicron, Prime Minister Boris Johnson said on Monday, the first publicly confirmed death globally from the swiftly spreading strain.

The Federal Reserve is anticipated to accelerate the withdrawal of stimulus on Wednesday, perhaps opening the door to earlier interest-rate hikes in 2022 if price pressures remain near a four-decade high. Therefore, US yields will be a major driver on the outcome.

On Monday, the US 10-year Treasury yield as fallen hard by over 4% which has sunk the greenback, as measured by the DXY index, by 0.19%.

If the pace of the Fed’s taper be doubled to USD 30bn per month, then a generally more hawkish tone from the central bank could play into the hands of the US dollar bulls.

This could once again weigh on the yellow metal in the near term, particularly as a reversal of the liquidity premium in breakeven markets, driven by tapering, could also catalyze a change in sentiment across precious metals as its impact ripples through into market pricing for Fed hikes.

Beyond the near-term, our macro strategists expect enough slowing in inflation and growth to delay rate hikes until 2023. In this scenario, amid an increasingly clean positioning slate, gold would be set to recover in 2022 as markets would be forced to reprice aggressive Fed hikes.