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Gold bounces as dollar stalls, omicron-led volatility lingers

Gold rose on Wednesday, tracking a retreat in the dollar as investors used a pullback in the previous session to buy bullion as a hedge against wider market volatility amid concerns over the impact of the Omicron coronavirus variant.

 

·         Spot gold was up 0.4% to $1,780.05 per ounce by 2:33 p.m. ET (1933 GMT), after falling as much as 0.9% on Tuesday after Federal Reserve Chair Jerome Powell’s remarks the central bank will discuss whether to end bond purchases earlier than expected in its December meeting.

 

·         Concerns over the virus variant are supporting gold as fresh restrictions will slow the global economy, with a weaker dollar also boosting demand for the safe-haven metal, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

 

·         U.S. gold futures settled up 0.4% at $1,784.30.

 

·         Gold’s bounce came alongside a sharp rebound in equities, even as the U.S. imposed tougher COVID-19 testing rules for air travellers, while more countries tightened borders.

 

However Craig Erlam, a senior market analyst at OANDA, said “gold is struggling for momentum in either direction which is a little strange given yields are still low and the dollar is softening.”

 

“Choppy markets with underlying anxiety should also be supporting gold prices more but its inability to drag itself back above $1,800 isn’t a great sign.”

 

·         Meanwhile, Federal Reserve Chair Jerome Powell said with the U.S. economy growing strongly and supply-demand imbalances poised to persist in the near future, policymakers need to be ready to respond to the possibility that inflation may not recede in the second half of next year as expected.

 

·         Some investors view gold as a hedge against higher inflation, but reduced stimulus and interest rate hikes push government bond yields up, raising non-interest bearing gold’s opportunity cost.

 

·         Spot silver fell 2.3% at $22.27 per ounce.

 

·         Platinum steadied at $934.55.

 

·         Palladium rose 0.1% to $1,740.25.

 

·         Dollar steadies, risk currencies recover from omicron-driven drop

The dollar steadied on Wednesday and risk appetite recovered somewhat, but euro-dollar volatility remained elevated as investors weighed up hawkish comments from the Federal Reserve and risks relating to the Omicron variant.

The dollar rose on Tuesday after U.S. Fed Chair Jerome Powell said that the risk of inflation had increased and signaled the central bank may accelerate its bond-buying taper at its meeting later this month.

At 1147 GMT, the dollar index was little changed overall on the day at 95.940. In November, it had its strongest month since June.

·         Yields pare gains after Omicron variant found in U.S.

Benchmark 10-year yields were little changed on the day at 1.434%, after earlier rising to 1.506%.

 

·         WHO says omicron has been found in 23 countries across the world

 

·         CDC confirms first U.S. case of omicron Covid variant has been detected in California

 

·         Powell says Fed will discuss speeding up bond-buying taper at December meeting

With inflation risks rising, Fed's Powell prepares for possible pivot

The U.S. central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of next year as most forecasters currently expect, Federal Reserve Chair Jerome Powell said on Wednesday.

In his second day of testimony in Congress, Powell reiterated that he and fellow policymakers will consider at their upcoming meeting a faster wind-down to the Fed's bond-buying program, a move widely seen as opening the door to earlier interest rates hikes.

With very strong consumer demand colliding with persistent supply chain problems, the Fed may be nearing the time when it must choose between aiming for full employment and keeping inflation in check.

 

·         U.S. firms battle higher inflation and worker shortages, Fed survey shows

The U.S. economy expanded at a modest-to-moderate pace in October and the first half of November while firms grappled with rising inflation and a scramble to fill jobs amid labor shortages, a survey conducted by the Federal Reserve showed on Wednesday.

 

·         OECD says inflation is main risk to economic outlook

The main risk to an otherwise upbeat global economic outlook is that the current inflation spike proves longer and rises further than currently expected, the OECD said on Wednesday.

Global growth is set to hit 5.6% this year before moderating to 4.5% in 2022 and 3.2% in 2023, the Organisation for Economic Cooperation and Development said in its latest economic outlook.

That was little changed from a previous forecast of 5.7% for 2021, while the forecast for 2022 was unchanged. The OECD did not produce estimates for 2023 until now.

 

·         Supply chain chaos to persist through to next summer, Siemens chairman says

Supply chain chaos will likely persist through to the middle of next year, according to Jim Snabe, chairman of German conglomerate Siemens and Danish shipping firm Maersk.

 

·         Construction spending rises moderately in October

U.S. construction spending rebounded less than expected in October as a decline in homebuilding blunted a surge in outlays on public projects.

The Commerce Department said on Wednesday that construction spending gained 0.2% after dipping 0.1% in September.

 

 

·         Private payrolls post better-than-expected growth of 534,000 in November, ADP says

Companies added jobs at a robust pace in November despite worries about rising inflation and the threat that the pandemic could slow growth into the winter months, according to a report Wednesday from payroll processing firm ADP.

Private hiring increased by 534,000 for the month, better than the Dow Jones estimate of 506,000 in a labor market that appears to be getting tighter. The total was a decline from the October growth of 570,000, which was revised lower by 1,000.

Big business led job creation by company size, but it was hospitality and leisure that led in the sectors.

 

·         Russia expels U.S. Embassy staff in retaliatory move as tensions mount between Washington and Moscow

Relations between the U.S. and Russia, which are already tense, took another turn for the worse Wednesday after Russia said it was ordering U.S. Embassy staff who have been in Moscow for more than three years to fly home by the end of January.

 

Reference: CNBC, Reuters