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Gold retreats as Fed's Powell strikes hawkish tone

Gold beat a hasty retreat on Tuesday as investors latched on to seemingly hawkish remarks from the U.S. Federal Reserve chair, erasing gains from an over 1% rally fuelled by concerns over the Omicron coronavirus variant.

 

·         Spot gold fell 0.7% to $1,773.21 per ounce by 02:14 p.m. ET (1914 GMT).

·         U.S. gold futures settled down 0.5% at $1,776.5.

 

·         Prices earlier rose as much as 1.3% earlier in the session after a warning from Moderna's CEO that COVID-19 vaccines were likely to be less effective against the new variant.

 

·         In a testimony before the U.S. Senate Banking Committee, Fed Chair Jerome Powell said the Fed likely will discuss speeding up its taper of large-scale bond purchases at its next meeting.

 

·         Powell's comments drove a slight rebound in the dollar, which has steadied since then.

 

·         "Everyone got a little surprise as Powell moved closer toward the hawkish side," said Edward Moya, senior market analyst at brokerage OANDA, adding the Fed would likely implement rate hikes at a more rapid pace.

 

Gold is used to hedge against inflation, but interest rate hikes raise the opportunity cost of holding gold.

 

But longer term, gold will be supported by worries over the virus variant, Moya added.

 

·         Gold's fall came alongside a tumble in Wall Street after Powell's comments hinting at a faster shift to tightening policy hurt risk sentiment already weighed down by concerns over Omicron.

 

·         Elsewhere, spot silver fell 0.1% to $22.86 per ounce, platinum dropped 2.6% to $938.50 and palladium slumped 3.5% to $1,732.50.

 

·         Looking ahead to 2022, increased investment in solar panels should boost silver, BofA Global Research said in a note.

 

"Platinum is the rebound trade on a normalisation of chip shortages in the auto industry; substitution from palladium should also help."

 

·         U.S. dollar gains as Powell says risk of inflation has increased

The dollar index turned positive after the Powell comments and was last up 0.1% at 96.331.

 

·         Powell places faster bond-buying taper on Fed's Christmas table

In an appearance before a Senate committee, the Fed chief said he thinks reducing the pace of monthly bond buys can move quicker than the $15 billion-a-month schedule announced earlier this month.

Powell’s comments suggest that the Fed’s focus has now changed to fighting inflation and its negative impacts rather than any more potential disruptions in economic activity from new variants of Covid.

 

·         Fed's Clarida says high inflation seen this year is 'not a success'

Federal Reserve officials are not happy with elevated inflation running above the central bank's 2% target and it would not be a success for those inflation levels to be repeated next year, Fed Vice Chair Richard Clarida said on Tuesday.

"No one is happy when inflation is running at 4% or 5% when our goal is 2%," Clarida said during a conversation with Cleveland Fed President Loretta Mester. "This is not a success, this year, and I wouldn't consider a repeat next year of inflation at this level a success."

 

·         10-year Treasury yield dives below 1.45% on mounting omicron fears

 

·         FDA advisory panel narrowly endorses Merck’s oral Covid treatment pill, despite reduced efficacy and safety questions

 

·         Moderna CEO Stephane Bancel told the Financial Times that he expects existing vaccines to be less effective against the new variant.

The CEO told the newspaper there could be a “material drop” in the current vaccines’ effectiveness against this variant. Bancel told CNBC on Monday that it could take months to develop and ship an omicron-specific vaccine.

·         Regeneron said its antibody treatment may show reduced effectiveness against omicron.

 

·         EU medical agency says vaccine revisions for omicron could be approved in 3-4 months

 

·         Brazil reports first Latin American cases of Omicron variant

 

·         Rising inflation, relentless pandemic dampen U.S. consumer confidence

U.S. consumer confidence dropped to a nine-month low in November amid worries about the rising cost of living and pandemic fatigue, but that did not change expectations for stronger economic growth this quarter.

The Conference Board said its consumer confidence index fell to 109.5 this month, the lowest reading since February, from 111.6 in October. The survey was conducted before the discovery of Omicron, a new COVID-19 variant.

A second report on Tuesday showed the S&P CoreLogic Case-Shiller's 20 metropolitan area home price index rose 19.1% on a year-on-year basis in September after advancing 19.6% in August.

 

·         Euro zone inflation rate hits a record 4.9% for November

The euro zone’s inflation rate has risen to a record high in November, preliminary data showed Tuesday, prompting further questions about what the European Central Bank will do next with its monetary policy.

Headline inflation came in at 4.9% for the month, compared to the same month last year. This was above a consensus forecast of 4.5% from Reuters and was higher than October’s 4.1%. The figure was the highest on record in the 25 years that the data has been compiled.

 

·         Turkish lira slides to record low after President Erdogan doubles down on rates policy

The Turkish lira slid to a new record low on Tuesday after fresh statements from Turkish President Recep Tayyip Erdogan opposing any interest rate increases.

The currency hit a low of 13.47 to the dollar in late afternoon trading, surpassing its previous record low last week of roughly 13.45 to the greenback, following renewed worries over the country’s monetary policy and concerns over the Covid-19 omicron variant.

The lira’s spiral has been staggering — it plummeted from roughly 8.5 to the dollar in late August to more than 13 to the dollar within a mere three months.

 

·         OPEC+ begins two days of talks amid oil rout

OPEC and its allies begin two days of meetings on Wednesday to decide whether to release more oil into the market or restrain supply amid an oil price rout and fears the Omicron coronavirus variant could weaken global energy demand.

Oil prices fell to near $70 a barrel on Tuesday from as high as $86 in October, posting their biggest monthly decline since the outset of the pandemic, as the new variant raised fears of a supply glut.

Reference: CNBC, Reuters, Worldometers