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Gold slides over 1% on bets hawkish Fed tilt may stem inflation

Gold dropped over 1% to a one-month low on Thursday, as investors latched on to signs of a seemingly hawkish tilt in U.S. monetary policy that could rein in rising consumer prices in future.

·         Spot gold was down 1.1% at $1,764.00 per ounce by 01:57 p.m. ET (1857 GMT), after hitting its lowest since Nov. 3.

·         U.S. gold futures settled down 1.2% at $1,762.70.

 

·         "The Fed policy shift and the suggestion that inflation fears are going to be lessening has taken the wind out of the (gold) bull sail," said Jim Wyckoff, senior analyst at Kitco Metals, pointing to a retreat in crude oil prices that may suggest ebbing inflation pressures as well.

 

Gold seemed to take cues from increased bets that early interest rate hikes – translating into higher opportunity cost of holding non-yielding gold – would curb future inflation, flattening the yield curve.

 

While the gain in stock markets may suggest improved appetite for risk, further volatility in equities, especially amid lingering uncertainty over the Omicron coronavirus variant, may put a floor under prices of safe-haven gold, Wyckoff added.

 

·         Although Wall Street rebounded boosted by financials shares, rising cases of the virus variant globally continued to drive volatility across markets.

 

·         The prospect of a faster taper could cap the upside for bullion and boost the U.S. dollar and Treasury yields, in a further dent to gold's appeal, said Michael Hewson, chief market analyst at CMC Markets UK.

 

Adding to the rhetoric, U.S. Treasury Secretary Janet Yellen told the Reuters Next conference it was the Fed's job to ensure that the current run of high inflation does not evolve into a damaging and long-lasting "wage-price spiral" like in the 1970s.

·         Spot silver steadied at $22.31 per ounce, platinum gained 0.3% to $936.00 and palladium added 1.8% to $1,778.68.

 

·         Jobless claims less than expected as labor market returns to pre-pandemic self

Initial claims for unemployment insurance rose last week but held at levels consistent with how the job market looked before the Covid-19 pandemic devastated the U.S. employment picture, the Labor Department reported Thursday.

First-time filings for the week ended Nov. 27 totaled 222,000, less than the 240,000 Wall Street expected. That was higher than the 194,000 from the previous week, but that total, the lowest since 1969, was revised even further down from the initial 199,000 reported.

In addition to the brightened outlook for initial claims, continuing claims fell by another 107,000 and are now below 2 million for the first time since the early days of the pandemic. The last time continuing claims, which run a week behind the headline number, were lower than the current 1.96 million was March 14, 2020.

 

·         Omicron will likely ‘dominate and overwhelm’ the world in 3-6 months, doctor says

 

·         Omicron Covid variant likely circulating for longer — and more widely — than thought, experts say

 

·         Omicron could pose 'significant' threat to global economy, Yellen says

The Omicron variant of COVID-19 could slow global economic growth by exacerbating supply chain problems and depressing demand, U.S. Treasury Secretary Janet Yellen told the Reuters Next conference on Thursday.

Yellen cited a great deal of uncertainty about the impact of the highly contagious variant, first detected in South Africa, given the severe U.S. economic slowdown caused by the emergence of the Delta variant of COVID-19 earlier this year.

 

·         U.S. dollar drifts higher; traders eye non-farm payrolls

In afternoon trading, the dollar index, which tracks the greenback against six major currencies, rose 0.1% to 96.131 .

The index dropped last week after news of Omicron first emerged, although it remains close to a 16-month high of 96.938 hit last month.

Traders are also awaiting clarity on how quickly the Fed will taper its asset purchases, as central banks around the world grapple with how to unwind stimulus amid soaring inflation.

Fed Chair Jerome Powell reiterated in testimony to Congress on Wednesday that he and fellow policymakers will consider swifter action at their Dec. 14-15 meeting.

Several Fed officials - Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin, and San Francisco Fed President Mary Daly - on Thursday echoed Powell's comments.

 

·         Unfazed by Omicron, Fed policymakers show greater consensus for faster taper

Federal Reserve policymakers on Thursday sounded sanguine about the economic impact of the latest COVID-19 variant, but flagged rising inflation in remarks that suggested growing consensus for an earlier end to bond buys and, perhaps, earlier interest rate hikes next year.

Atlanta Fed President Raphael Bostic told the Reuters Next conference on Thursday it would be appropriate to end the central bank's bond-buying program by the end of March to allow the Fed to raise rates to deal with inflation.

 

·         Fed's Daly says officials may need to start crafting plan for rate increase

As Federal Reserve officials always need to be prepared for various economic scenarios and it might be time to start crafting a plan for raising interest rates to address above target inflation, San Francisco Fed President Mary Daly said on Thursday.

 

·         Fed's Quarles says regulatory overkill could stifle stablecoin innovation

Randal Quarles, the former regulatory chief of the Federal Reserve, said on Thursday that U.S. regulators may "unnecessarily" hamper innovation around so-called stablecoins if they pursue recent recommendations put forward by a Biden administration working group.

 

·         Investors flee U.S. corporate junk debt on inflation, Omicron concerns

 

·         U.S. junk bond funds see biggest outflows in 8 months in November

·         U.S. Senate poised to vote Thursday on bill funding government, averting shutdown risk

The U.S. Senate is poised to vote on Thursday night to fund the government through mid-February, removing the risk of a partial shutdown, Democratic Majority Leader Chuck Schumer told reporters.

That vote would come hours after the House of Representatives voted 221-212 to approve the stopgap funding bill, which runs through Feb. 18. Only one Republican supported the measure.

 

Reference: CNBC, Reuters