Spot Gold (XAU/USD) prices have maintained their stability at the 50-day moving average, which is now slightly above $1790.
Prices have been largely flat on the day, notwithstanding a minor increase in the value of the US Dollar and a rise in US real yields.
Since last Friday, the exchange has had choppy trading, which has coincided with an increase in cross-asset instability as a result of concerns over the newly identified COVID-19 strain (Omicron) in South Africa.
After the US currency and US rates tumbled as a result of Omicron worries, the market surged as high as $1815.00 on Friday, but then lost steam and fell below $1800 within minutes. It fell as low as $1770 shortly after the beginning of trading on Monday but has since rebounded.
Gold As A Solid Hedge Against COVID Worries?
Recent trading suggests that market players are divided on whether Gold is a suitable hedge against the danger of an Omicron eruption.
First and foremost, if the variation does prove to be a significant impediment to the global financial recovery, it is probable that central banks will stay more dovish than they otherwise might, which is beneficial to Gold.
Furthermore, if international travel and shutdown limitations have an influence on distribution networks, inflationary pressures might remain strong for a longer period, enhancing the attraction of precious metals as an inflation hedge in the long run.
However, there is a great deal of doubt regarding how severe this new variety will be, with preliminary reports from South African specialists indicating that the variant is linked with fewer symptoms than previous Covid-19 variants.
Severity About Vaccine-Resistance
It is necessary for the markets to have greater clarity about Omicron, including its capacity to defy vaccine-induced resistance, its severity, and its mode of transmission, among other things.
In a few weeks, the situation should become more obvious. Gold traders should be prepared for a flood of Fed statements and US data this week, which will be used to determine how the Fed reacts to current pandemic events and if fundamental US economic momentum is continuing to be robust.
Over the weekend, Atlanta Fed President Raphael Bostic acknowledged that Omicron posed a concern, but he also stated that he may support a more aggressive QE taper and more than one rate rise in 2022.
It’s possible that other Fed members may downplay the dangers associated with Omicron this week. That might imply that the recent reversal in hawkish Fed bets was an overreaction on the part of the market. This might result in greater short-term and long-term yields, which would be detrimental to Gold.