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Bull Trader USA

Metals Stocks: Gold recoups half of its Monday loss on disappointing U.S. data, omicron uncertainty

Gold futures climbed on Tuesday, finding some support despite strength in Treasury yields to recoup just over half of what was lost a day earlier, after data showed slower-than-expected growth among U.S. manufacturers in December.

A closely followed index of U.S.-based manufacturers dropped to 58.7% in the final month of 2021 compared with 61.1% in November, the Institute for Supply Management said Tuesday. That matched the slowest pace of growth in 11 months. Economists polled by The Wall Street Journal had forecast the index to slip to 60%.

The data come ahead of Friday’s much-anticipated monthly U.S. jobs report, which could help guide price direction for havens such as gold.

“The chaos caused by the rapid spread of the omicron variant came too late to have much effect on December payrolls, which we estimate increased by a healthy 350,000,” said Michael Pearce, senior US economist at Capital Economics, in a note Tuesday. “But the huge numbers of people being told to isolate could drive a significant drop in payrolls in January.”

For now, some analysts say that bullion continues to draw investment interest from those seeking to hedge against the potential impact of the omicron variant on the parts of the world.

Infections have surged, with the U.S., for example, registering 1,083,948 cases on Monday, according to data collected by Johns Hopkins University—more than double the previous record of 486,428 set four days ago.

The price of gold climbed Tuesday “with investors seeking the safety of the precious metal as some countries tighten measures to contain the escalation in the numbers of new omicron cases,” wrote Ricardo Evangelista, senior analyst at ActivTrades, in a Tuesday research report.

February gold GCG22 GC00  rose $14.50, or 0.8%, to settle at $1,814.60 an ounce on Comex. That followed a 1.6% decline on Monday, which brought the contract to the lowest for a most-active since Dec. 21, FactSet data show.

March silver SIH22, meanwhile, settled up 25 cents, or 1.1%, at $23.056 an ounce, following a 2.3% drop on Monday.

Any gains for gold “will be capped by developments in the U.S., where the dollar continues to strengthen on the back of higher Treasury yields, with the markets holding firm to the belief that the Federal Reserve will hike interest rates at least 3 times in 2022,” Evangelista wrote.

Minneapolis Fed President Neel Kashkari said Tuesday that inflation has risen higher and lasted longer than he expected. Also, in a separate essay released on his regional bank’s website, Kashkari said that at the December FOMC meeting, he penciled in two rate increases in 2022.

At last check, the 2-year Treasury note yield BX:TMUBMUSD02Y was hanging around a 22-month high, at 0.796%.

A sharp rise in Treasury yields which begins to drive real interest rates higher is a “major risk to the gold market,” analysts at Sevens Report Research wrote in Tuesday’s newsletter. For now, however, the near-term rally for gold remains “intact” with support between $1,775 and $1,800, they said.

Market-based projections point to the Fed starting the process of lifting rates as many as three times in 2022 this spring, when it concludes its asset-purchase program.

The dollar, meanwhile, was trading around 0.1% higher on Tuesday and has climbed 0.3% so far in early 2022 to around 96.286, as measured by the ICE U.S. Dollar Index DXY.

A stronger dollar and rising yields can serve as headwinds for prospective investors in bullion, which doesn’t bear a coupon and is priced in U.S. dollars.

In other Comex trading, March copper HGH22 rose 1.2% to $4.475 a pound. April platinum PLJ22 added 1.8% to $971.20 an ounce and March palladium PAH22 climbed nearly 1.9% to $1,859.70 an ounce.

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