Gold Holds Gains as Traders Weigh Omicron Risk, Monetary Policy

(Bloomberg) -- Gold held onto its first weekly advance since mid-November as investors weighed concerns over the spread of the omicron virus variant against tightening monetary policy. 

Risk aversion was evident across financial markets as Europe’s biggest countries introduced more curbs to fight a surge in Covid-19 infections, from another lockdown in the Netherlands to stricter travel restrictions at the height of the holiday period. European stock markets tumbled, with travel companies among the worst hit, while Brent crude fell as much as 5.3%. 

Lockdowns in the U.S. will likely not be necessary even as cases rise, although many hospitals may be strained, especially in regions with lower vaccination levels, according to President Joe Biden’s top medical adviser, Anthony Fauci. The outlook for U.S. growth also took a hit after Senator Joe Manchin blindsided the White House on Sunday by rejecting Biden’s roughly $2 trillion tax-and-spending package, leaving Democrats with few options for reviving it. 

While bullion capped a weekly gain Friday as omicron clouded the outlook for a global recovery, prices are still on track for the first annual loss in three years as central banks cut pandemic-era stimulus to fight inflation. Federal Reserve Governor Christopher Waller said a faster taper of the U.S. central bank’s bond-buying program positions it to start raising interest rates as early as March.

Gold has finally seen some buying as worries over rising inflation and the increasing spread of the virus halt the equity rally, said Madhavi Mehta, a senior analyst at Kotak Securities Ltd. Still, prospects for Fed tightening have kept investors on the sidelines as evidenced by exchange-traded fund flows, and any major upside may be limited, Mehta said. Low trade participation near year-end may keep prices volatile, but anchored in the $1,780 to $1,800 an ounce range.

Spot gold was little changed at $1,796.85 an ounce by 12:05 p.m. in London, after climbing 0.9% last week. The Bloomberg Dollar Spot Index was flat after advancing 0.6% Friday. Silver steadied, while platinum and palladium dropped. 

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