Gold prices have been in retreat since the Fed indicated that rate hikes might come faster than anticipated.
The retreat comes after a short rally for the precious metal following news that the Omicron variant could be resistant to vaccines, according to Moderna’s CEO Stéphane Bancel, who indicated that it could take months to develop a vaccine that is effective against the variant. In an interview with the Financial Times, Bancel said, “There is no world, I think, where [the effectiveness] is the same level … we had with [the] Delta [variant].” Combined with news of persistent inflation, gold briefly broke through its $1800 resistance mark before falling back.
The tumble was initiated by Fed Chair Jerome Powell’s testimony to the U.S. Senate Banking Committee. Powell indicated that the Fed would speed up its taper of large-scale bond purchases at its next meeting. “Everyone got a little surprise as Powell moved closer toward the hawkish side,” said Edward Moya, senior market analyst at brokerage OANDA.
Long-Term Outlook Still Bullish for Gold
Gold’s wild year continues, and it might seem like the precious metal can’t catch a break. A stronger-than-expected job report in November blunted some of the gains made by inflation concerns, and the Omicron variant’s threat to the economy being met with a surprisingly hawkish Fed stance has also bogged gold down. Gold’s status as the ultimate inflation hedge is also being challenged by cryptocurrency.
That said, gold continues to have a lot going for it in the long run. Crypto assets remain volatile, which is not a quality any investor should seek in an inflation hedge. Most significantly though, Omicron’s impact is still unknown. With cases now reaching the U.S., there could be a real danger of another COVID surge, especially in the midst of the holiday season. According to remarks from Dr. Fauci prior to Thanksgiving, “We have a lot of virus circulating around. You can’t walk away from the data, and the data show that the cases are starting to go up, which is not unexpected when you get into a winter season. People start to go indoors more and we know that immunity does wane over time.” If the economy slows down, gold could benefit.
Finally, despite the hawkish stance from the Fed, inflation could remain persistent. Supply chain issues remain unresolved, and a situation of ongoing inflation or stagflation historically sends gold surging. Investors looking to buy now while the metal remains mired in the permeating uncertainty of the moment can check out the Sprott Physical Gold Trust (PHYS ). Gold miners can also be a source of big returns in times of inflation, and investors may want to look at the Sprott Gold Miners ETF (SGDM ) and the Sprott Junior Gold Miner’s ETF (SGDJ ).
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