Biden’s Soft-Tone Toward Omicron Impact Erases Intraday Gains

Gold lost its early strength after President Joe Biden said economic lockdowns in response to the omicron COVID variant are currently off the table.

Gold futures are trading nearly flat late in the session on Monday as traders continued to assess the potential impact of the Omicron coronavirus variant on the U.S. economy. The biggest concern for traders is whether the variant will hurt the U.S, economy enough to curtail any plans by Fed members to speed up the tapering of monetary stimulus. The faster the Fed pulls back its stimulus, the sooner it can raise interest rates.

At 20:15 GMT, February Comex gold futures are trading $1786.50, down $1.60 or -0.09%.

A faster tapering and a sooner rate hike would be supportive for the U.S. Dollar, while dampening demand for dollar-denominated gold.

Traders have been pricing in a quicker tapering for weeks so any changes in the economic outlook due to the variant would encourage investors to reduce expectations for a strong tapering pace. This could cause yields to fall, pushing down the dollar and increasing foreign demand for gold. The price action would be very similar to what we saw last Friday.

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Treasury Yield Rebound Weighs on Gold Prices

Short-Term Outlook

After a promising start early Monday, gold lost its strength after President Joe Biden said economic lockdowns in response to the omicron COVID variant are currently off the table.

“If people are vaccinated and wear their masks, there’s no need for lockdowns,” Biden said at a press conference Monday. Biden also said there would be no new travel restrictions.

The World Health Organization on Friday labeled the omicron strain a “variant of concern.” While scientists continue to research the variant, omicron’s large number of mutations has raised alarm. Preliminary evidence suggests the strain has an increased risk of reinfection, according to the WHO.

The South African doctor who first raised the alarm over the new variant told the BBC that patients had “extremely mild” symptoms though it was too early to determine how omicron behaves before it is studied closely.

The 10-year Treasury yield rebounded back above 1.5% on Monday after a flight to safety Friday sent investors scrambling into bonds and sent rates lower.

The yield on the benchmark 10-year Treasury note rose by 4.6 basis points to 1.531% at around 20:00 GMT. The yield on the 30-year Treasury bond climbed by 4.8 basis points to 1.878%.

Unless there is breaking news on the omicron, gold traders may start shifting their focus back to U.S. economic data and the possible faster tapering of U.S. monetary policy stimulus by the Fed.

Looking ahead to data releases due out later in the week, investors will be monitoring the November nonfarm payroll report, set to be published on Friday. Jobs and inflation data are both being used by the Fed to determine its timeline on normalizing monetary policy.

A strong jobs report will likely fuel the resumption of selling pressure on gold prices.