Gold prices rally to a more than 3-week high as U.S. dollar slips in wake of Fed decision
Gold futures rallied on Thursday as the U.S. dollar slipped, helping lift prices to their highest finish in more than three weeks, a day after the Federal Reserve’s policy update.
Some analysts speculated that gold might be getting support from hedging the economic risks involved with the spread of the omicron variant of the coronavirus that causes COVID-19.
Rising cases due to the omicron variant “persuaded investors to take some exposure to the precious metal until the coronavirus situation cools down,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a daily research note.
February gold rose $33.70, or 1.9%, to settle at $1,798.20 an ounce after touching an intraday high of $1,800.60. The settlement was the highest for a most-active contract since Nov. 22, according to FactSet data. Wednesday’s finish was the lowest since Dec. 2.
March silver rose 94 cents, or 4.4%, to settle Thursday at $22.485 an ounce, following a 1.7% decline a day ago.
Despite the hawkish Fed, the U.S. dollar index dipped and gold prices edged higher, said Aslam. “This is odd because when a central bank acts aggressively, the dollar index usually climbs as higher interest rates push the demand for that currency higher. However, this was not the case after yesterday’s FOMC meeting,” Aslam said.
The dollar, as measured by the ICE U.S. dollar index was trading 0.5% lower, while the 10-year Treasury yield was around 1.426%, down from 1.46% on Wednesday.
In other central bank news Thursday, the Bank of England surprised the market with a 15 basis-point hike to its benchmark interest rate to 0.25%. The European Central Bank, meanwhile, left key interest rates unchanged and reiterated that its Pandemic Emergency Purchase Programme will end in March as planned.
“Central banks are finally getting serious on inflation,” Chintan Karnani, director of research at Insignia Consultants, told Marketwatch. “They will take measures to bring down inflation.”
The Bank of England raising interest rates is “just a precursor” for other central banks to follow the same path, he said. “Gold is getting support from central banks’ serious focus on taming inflation.”
The omicron virus is spreading faster than expected globally and that will also support the gold price, he said. Technical trading and omicron will dictate the gold price for the next two weeks, he said, and tensions between Russia and Ukraine, if that escalates into a war-like situation, “can be the ‘X-factor’ for gold bulls.”
· European Central Bank cuts pandemic bond buying, but pledges further stimulus
· Bank of England announces rate hike from pandemic-era lows
The Bank of England on Thursday hiked interest rates for the first time since the onset of the pandemic, increasing its main interest rate to 0.25% from its historic low of 0.1% as inflation pressures mount.
· BOJ may scale back emergency funding as pandemic strains ease
The Bank of Japan is set to keep monetary policy ultra-loose on Friday but may dial back emergency pandemic-funding, less than 48 hours after the U.S. Federal Reserve signaled an imminent end to stimulus as policymakers respond to soaring global inflation.
· U.S. economy poised for strong end to 2021; labor market tightening
Initial claims for state unemployment benefits rose 18,000 to a seasonally adjusted 206,000 for the week ended Dec. 11. Claims had dropped to 188,000 in the prior week, the lowest since 1969. Economists polled by Reuters had forecast 200,000 applications for the latest week. Claims have declined from a record high of 6.149 million in early April of 2020.
· Biden signs debt ceiling increase, preventing first-ever U.S. default
· U.S. blacklists 34 Chinese entities, citing human rights abuses and ‘brain-control weaponry’
· Omicron replicates 70 times faster than delta in airways, but lung infection appears less severe, study says
· Covid surge is gripping New York City ahead of the holidays: ‘We’ve never seen this before’
Reference: MSN, CNBC, Reuters
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