Gold Trades in Narrow Range As Higher Bond Yields Offset Omicron Jitters

Gold bar

Gold prices held steady on Wednesday as the year-end holidays approach. Bullion demand remained strong due to the rapid spread of the Omicron coronavirus that offset rising risk appetite. But the yellow metal’s gains were capped by the stronger dollar and higher bond yields. The greenback rose by 0.1% at 96.585 after two days of losses. And it made the yellow metal more expensive for investors using rival currencies. U.S. Treasury yields rose as traders were optimistic about the economic conditions. It pushed the opportunity cost of holding the non-interest-bearing metal up.

Spot gold is currently trading at $1,786.29 per ounce as of 0848 GMT.

Stephen Innes, the managing partner at SPI Asset Management, said the current market environment is conducive to moving to riskier assets. And that weighs on the yellow metal. Another headwind for gold is the projected higher inflation rate in the first quarter of 2022. It would likely influence the Federal Reserve to end its bond-buying program a lot quicker.

Avtar Sandu of Phillip Futures predicted gold prices to consolidate in the comfortable range. He explained that the metal lacks momentum, trading volume is thin and major players are away for the holidays.

Technical analysis showed that spot gold might retest a support level at $1,785 per ounce. There is also a good chance that it will fall from that level. If that happens, it could drop further to the $1,773-$1,778 range.

DailyFX senior strategist Christopher Vecchio noted the failure of last week’s bullish outside engulfing bar to push gold prices up. It indicates a possible step back for gold prices. He also mentioned that gold prices’ relationship with gold volatility remains inverted. And last week’s trading proved that the decline in volatility was an obstacle to further price gains.

Vecchio highlighted the yellow metal’s poor weekly fundamentals. Weekly Slow Stochastics and moving average convergence divergence (MACD) as flat with respect to their medial and signal lines. The weekly 4-, 8- and 13-Exponential Moving Average (EMA) envelope is flat as well, indicating the lack of upward momentum. In addition, the IG Client Sentiment Index showed a mixed bias for gold prices in the near term. Vecchio predicted mode sideways chops for gold as the year ends.