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Gold gains as new COVID-19 variant lifts safe-haven demand

·         Gold gained on Friday, as concerns over the spread of a newly identified coronavirus variant boosted the metal's safe-haven appeal, although bullion was set for a weekly drop on bets of U.S. Federal Reserve turning more hawkish.

·         Spot gold rose 0.6% to $1,798.20 per ounce by 0621 GMT.

·         U.S. gold futures advanced 0.8% to $1,798.30.

·         The variant spreading in South Africa may evade immune responses and has prompted Britain and a growing number of other countries to hurriedly introduce travel restrictions on the African nation.

·         Further aiding gold's climb, the dollar index eased 0.2% from a 16-month peak scaled earlier this week, while U.S. benchmark 10-year Treasury yields also weakened.

·         A weaker dollar reduces gold's cost to buyers holding other currencies.

But the metal was heading for its worst week since Aug. 6 on increased expectations that the Fed could taper its asset purchases and raise interest rates at a faster pace.

·         "A rate hike cycle is generally negative for gold, but we have to keep an eye on this new COVID variant - if it spreads to the United States, that could weaken growth and I can't see the Fed hiking rates in that environment," said Stephen Innes, managing partner at SPI Asset Management.

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of non-interest bearing gold.

·         Michael Langford, director at corporate advisory AirGuide, expects gold to decline further on higher chances of Fed's sticking to tapering timeline.

"The Fed is unlikely to alter its taper timeline as monetary policies are closely intertwined with the government's public sentiment that any change would be negative for their next election prospects, limiting gold's decline."

·         Spot silver was steady at $23.57 per ounce. Platinum fell 1.2% to $983.22, while palladium rose 0.8% to $1,874.60.

·         U.S. Treasury yields dive as virus variant clouds outlook

U.S. Treasuries rallied sharply in Asia on Friday as concerns about a new COVID-19 variant drove demand for safe-haven assets and a paring of recent bets on rate hikes through next year.

Two-year yields , a guide to short-term U.S. interest rate expectations, fell 6.7 basis points (bps) to 0.5767% in Tokyo trade, the sharpest drop since March 2020.

Ten-year yields fell 8.2 bps, the sharpest drop since July, to 1.5601% and five year yields fell nearly 9 bps to 1.2565%. Bond yields fall when prices rise

·         Yen rallies, rand and Aussie stumble as new variant spurs flight to safety

The safe-haven yen rallied while the South African rand and risk-sensitive Australian dollar slumped on Friday, as investors ducked for cover following the discovery of a new coronavirus variant that could resist current vaccines.

The yen leapt as much as 0.64% to 114.595 per dollar, and fellow haven the Swiss franc rose as much as 0.33% to 0.9330 per dollar after South African scientists discovered the B.1.1.529 variant spreading in the country. The variant has a cluster of mutations that may help it evade the body's immune response and make it more transmissible. It has since been found in Botswana and in Hong Kong.

The rand dropped 1.62% to a more than one-year trough at 16.24 per dollar, while the Aussie and New Zealand dollars slumped to three-month lows at $0.7135 and $0.6818, respectively.

Britain has rushed to introduce travel restrictions on South Africa and neighbouring Botswana, Namibia, Zimbabwe, Lesotho and Eswatini. Sterling slipped to a new 11-month low of $1.3299.

However, the euro rose 0.15% to $1.1222, recovering after hitting its lowest in nearly 17 months earlier in the week at $1.1186. Germany is considering following Austria's lead and reimposing a COVID-19 lockdown with the continent once again the epicentre of the pandemic.

Gains for the yen, franc and euro pushed the dollar index - which measures the greenback against those and three other currencies - further away from Wednesday's 96.938, its highest in nearly 17 months. It last traded at 96.707

But the index remained up 0.72% on the week, still headed for its fifth straight weekly advance.

Traders have ramped up bets that an increasingly hawkish Federal Reserve will lift rates by the middle of next year, while central banks in Europe, Japan and elsewhere stick to more dovish stances.

·         The Federal Reserve is likely to become a tougher talking central bank, could end bond program sooner

·         Money markets are pricing for a Fed rate hike by July, with good odds it could come in June.

·        Japan PM Kishida urges companies to raise wages by 3% or more

·         Japan factory output to post first rise in 4 mths as bottlenecks ease

Japan's factory output probably rose in October for the first time since June, while retail sales likely posted the first growth in three months helped by eased COVID-19 restrictions, a Reuters poll showed.

Reference: CNBC, Reuters