Gold prices firmed as concerns over the economic impact of the surge in Delta variant infections dampened the demand for riskier assets. The virus jitters lifted the bullion’s appeal even as the U.S. dollar remained near recent highs. The dollar and the yellow metal are considered rivals as safe-haven assets in times of economic and political uncertainties.
Spot gold is currently trading at $1,787.52 per ounce as of 0820 GMT.
OANDA Asia Pacific senior market analyst Jeffrey Halley noted that the COVID-19 Delta variant is the elephant in the room. If it derails global economic recovery, then gold is likely to experience more haven buying. But he argued that the fate of the precious metal depends on the FOMC minutes due today at 1800 GMT. If the Fed hints at tapering, it would lift both the dollar and U.S. Treasury yields and pull gold down to $1,700 per ounce, he added.
DailyFX strategist Margaret Yang said the geopolitical tensions in Afghanistan and the Taiwan Strait boosted the demand for gold. Bullion prices have recovered from a four-month trough, and the MACD indicators suggest that upward momentum is building.
Market participants are waiting for the minutes of the FOMC July meeting to get clues about the Fed’s tapering plans. Fed Chair Jerome Powell stated that the economic impact of the Delta variant surge remains unclear. The American people and businesses have learned to adapt and live their lives despite COVID, he explained.
Minneapolis Federal Reserve Federal Neel Kashkari commented yesterday that it could be reasonable to start tapering the $120 billion monthly bond-buying program. Though it depends on employment growth, he said. As one of the most dovish policymakers, his remarks indicate that there is little opposition on dialing back the Fed’s massive economic support. On raising interest rates, Kashkari said it is likely to be still a few years away.
Meanwhile, the U.S. Commerce Department reported that retail sales dropped more than expected in July. It suggests a slowdown in economic growth at the beginning of the third quarter.
In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, dropped by 0.3% from 1,020.63 tons on Monday to 1,017.14 tons yesterday.