Gold drifts while Covid surge competes with outlook for rate hikes

Bengaluru — Gold struggled for momentum on Wednesday, as market participants weighed prospects of early interest rate increases from the US Federal Reserve against rising Covid-19 cases.

Spot gold was flat at $1,814.58/oz by 0436 GMT. US gold futures were also unchanged at $1,815.40.

Putting pressure on gold are “higher yields, dollar and the hanging idea that interest rates going to go up in March — [investors] are more cautious on that aspect”, said Brian Lan, MD at dealer GoldSilver Central.

Lan, however, said gold is bound to be supported by safe haven demand as more central banks will buy the metal “if Omicron isn’t reined in and continues to be an issue globally”.

Making gold less appealing for other currency holders, the US dollar index hovered near the two-week high touched on Monday, tracking gains in US treasury yields.

Benchmark 10-year treasury yields rose to their highest in more than a month on Tuesday, as investors were all set for Fed rate hikes by midyear to curb stubbornly high inflation. Higher yields raise the opportunity cost of holding gold, which does not pay interest.

Futures on the federal funds rate on Tuesday priced in a roughly 66% chance of a quarter percentage point tightening by March, with investors fully pricing in that scenario by May.

The US set a global record of reporting almost 1-million new coronavirus infections on Monday, according to a Reuters tally.

“Upside for gold is subdued as other asset classes offer better leverage to risk and returns,” said Michael Langford, director at corporate advisory AirGuide. “See short-term upside for gold at $1,820/oz but overall medium-term view is below $1,800.”

Spot silver fell 0.4% to $22.95/oz, platinum was down 0.4% to $967.35 and palladium was unchanged at $1,870.80.

Reuters