Gold and Silver prices rebounded on last of the week, as investors rushed into the perceived haven commodity after South Africa announced a potentially highly contagious new COVID strain. The B.1.1.529 variant has been detected in Botswana, travelers who visited South African in Hong Kong and a traveler who returned from Malawi in Israel.
Earlier this week, precious metals fell on the back of a stronger dollar and higher U.S. 10-year Treasury yields (higher opportunity cost of holding gold). Sourcing from ‘hawkish’ Fed minutes and strong initial jobless claims jobs data, the dollar was unrelenting. Initially, other safe-haven currencies picked up momentum (JPY, CHF) as COVID-19 contagion concerns were being mulled over but Friday’s new variant fears sparked a more systemic effect. Gold’s safe-haven appeal is typically realized when risks are widespread as opposed to localized – in this case, unique to Europe until now.
The new strain creates fresh risks to the outlook for metals demand, imperiling a recent rebound in prices driven by chronic supply constraints that have led to sharp drawdowns in global inventories. Traders across financial markets questioned whether new outbreaks could complicate central banks’ efforts to withdraw ultra-loose monetary policies. On Friday, traders rushed to cut back their bets on rate hikes, while safe-haven currencies rallied.
While Jay Powell’s reappointment as Fed chairman may signal continuity of U.S. monetary policy, sticky inflation may see real interest rates remain in a supportive range for gold, which in combination with resurgent consumer demand could see the metal hold up well in coming days.
COMEX Gold Daily Chart
Gold market movers next week come from high-impact U.S. economic data of which PMI and NFP data are significant. Positive PMI and better than expected NFP prints could intensify the current hawkish slant. This being said, worsening virus circumstances could hold more influence over gold prices next week leaving more room for bulls. Gold prices are taking support at uptrend line, for which support lies around $1800.