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Omicron variant affects gold price


7 December 2021

Gold’s negative correlation with the USD seemed to be on display once again in the past few days as the Omicron variant of the pandemic stirred the waters in the gold market as well. The markets seemed to overreact as the news broke out on Friday’s Asian session about the Omicron variant of the pandemic, originally sited as the African variant. It should be noted that the new Omicron variant was considered to be the most heavily mutated variant of the pandemic and scientists had mentioned that it has a big jump on evolution and very different that other variants so far, as per the BBC. The comments tended to intensify the market’s worries about the pace of the global economic recovery as restrictive measures were mulled in various countries to contain the transmission of the disease.

Gold prices rose as the USD seemed to retreat yet may have also gotten some support by the appeal provided by the uncertainty in the markets and the drop of US yields on Friday. Comments made by scientists that the symptoms of the Omicron variant seem to be mild tended to sooth market worries for the possible impact of the new variant of the pandemic on the recovery of the global economy and overall gold’s price retreated to levels seen before the Omicron variants’ news surfaced. We note though that the uncertainty in the markets is still present about the issue and could prove a market mover in the coming days as well, should the media headlines intensify market worries.

We allready mentioned that gold may have gotten some support on Friday also due to the drop of US yields, yet we have to note that today the 10-year yield is allready at lower levels than Friday with a downward trend building. Should US yields actually continue to drop we may see the shiny metal being supported as the attractiveness of US Treasury bills could be reduced further and vice versa.

On a more fundamental level traders may also be keeping an eye out for the inflationary pressures in the US economy and the Fed’s intentions regarding its monetary policy. It should be noted that the Fed Chairman Powell’s testimony before the US Senate today in the American session is to be closely watched by traders. Should the Fed’s Chairman actually show confidence about the economic recovery of the US and lean towards the hawkish side, implying a tightening of the Fed’s monetary policy at a faster pace we may see gold’s price retreating.

It should also be noted that alongside Powell, also, US Treasury Secretary Yellen will be testifying, who in past testimonies had also provided volatility for the bullions’ price. In general, the two combined could have an amplified effect on the markets so the event should be closely watched as it may produce more than a momentary effect.

In the coming days gold traders could be rather busy as we get a number of high impact financial releases from the US.  We make a start with the release of the US employment report for November due out on Friday December 3rd. Volatility could be created for gold’s price at and after the release as it did in the release of October’s employment data on the 5thof November as it could affect the USD, the Fed’s stance and US yields. Other than that, we would also note the release of the US ISM manufacturing PMI figure for November tomorrow the 1st of December the initial jobless claims figure on the 2nd of December while volatility could be extended on the 3rd as besides November’s US employment report we also get the US ISM non-manufacturing PMI figure for November as well as the US factory orders growth rate for October.

XAU/USD H4 Timeframe

XAU/USD H4 Timeframe

Gold’s price seems confined in a sideways movement between the 1780 (S1) support line and the 1800 (R1) resistance line, for the past days with the exception of the small rally on Friday. We tend to maintain a bias for a sideways movement of the precious metal’s price temporarily despite some bullish tendencies being present. For the sideways bias to change we would require a clear breaking of either of the prementioned levels. Should a buying interest be once again present for the precious metal we may see it breaking the 1800 (R1) resistance line that capped gold’s upward movement on the 14th of October and take aim of the 1815 (R2) resistance level, which marked the high point for gold last Friday the 26th of November.

The highest level noted in our chart would be the 1832 (R3) resistance hurdle, which provided resistance on the 9th of November before being broken. To the downside and should the bears take over, we may see golds’ price breaking the 1780 (S1) support line that provided support on the 24th and the 29th of November taking aim for the 1760 (S2) support level which held its ground to the gold’s downward pressure on the 18th of October. Lower than that we note the 1745 (S3) support barrier.

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