Gold Technically is a Laggard This Peak Season Again

Gold (XAUUSD) prices slipped to their lowest settlement since mid-October, as the initial safe haven demand for the metal caused by worries over the new Covid-19 omicron variant proves short-lived. But global inflation is on the rise: in the recent Minutes of the FOMC Meeting the U.S. Fed Chairman Jerome Powell admitted that the new Covid variant raised inflation uncertainty, and now inflation may be less transitory than they thought before. Gold is often viewed as an inflation hedge, but central banks’ ongoing stimulus reduction and promised interest rate hikes tend to push government bond yields up, translating into a higher opportunity cost for holding non-interest-yielding bullion. Also, Powell's hawkish pivot has prompted talk of rate hikes coming sooner than expected, also weighing on the non-interest-bearing assets.

Most traders and investors believe that the omicron variant won't cause catastrophic damage to the global economy. Indeed, omicron fears have somewhat subsided lately, so market panic is unlikely to happen this time around. That's putting some risk appetite back into the marketplace. Still, stocks as a class are outperforming safe havens, whose short-term technicals remain predominantly bearish.

February Comex gold closed yesterday shedding another 1.2% to $1,762.70/oz, the lowest settlement for a most-active contract since October 12. Gold miners traded broadly lower but managed to recover their worst losses on the day: GOLD -1.2%, BTG -1.9%, FNV -1.8%, EGO -0.8%, AEM -0.5%, KGC -0.5%, IAG -3.2%, AU -2.7%. Newmont (NEM -0.8%) shares yesterday plunged to a 52-week low after its 2022 production guidance missed the 6.6 million oz. consensus forecast, citing Covid-19's impact on the gold industry. That also will affect the company's output through next year. Newmont said it forecast 2022 gold output of 6.2 million oz, up from 6 million oz. the miner expects to produce in 2021.

Cyclically, November is the best month for gold when it most often stages annual rallies in the wake of seasonal demand rise. Apparently, this time around that did not happen, therefore, at this point, there is no much reason to wait for any more good news for gold in anticipation that it will finally catch up.