FX.co ★ Market expects demand for gold to rise

Yesterday bullion slumped again. However, at the end of the year, gold is forecast to rise due to increased demand ahead of the Chinese New Year.

Gold started the week with a drop. After climbing by 1.2% on Friday, quotations fell by 0.3% on Monday. In monetary terms, the loss amounted to $4.40. The asset closed the session at $1,779.50.

The main downward factors for gold were the strengthening of the dollar and rising US treasury bond yields.

Yesterday the greenback index was up by 0.2% against its main competitors. At the same time, the yield on US 10-year bonds rose to 1.437%, up from 1.342% last Friday.

Analysts said Friday's jump in metal was due to weak data from the US labour market. Statistics showed that growth in the number of new jobs slowed substantially in November.

A drop in the important indicator has encouraged the gold market. Investors speculated that this could derail the Fed's plan to accelerate the pace of bond purchases, so they turned to the safe-haven asset.

Nevertheless, the risk of an imminent tightening of monetary policy by the US central bank remains, especially as fears over the new COVID-19 strain have waned. In recent days, there have been a lot of reports that omicron has milder symptoms than delta.

The easing of panic around the Omicron strain now being witnessed in the market has again heightened investor worries about a more aggressive normalization of the Fed's current course.

Notably, the statement of US Central Bank's head about possible acceleration of reduction of asset purchases was the reason of sharp fall of gold quotations last week. The asset dropped by 0.1%.

"Gold has been in consolidation for many months since Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell indicated the central bank may start tapering and raising interest rates", Jeb Handwerger said.

Experts believe that the Fed's hawkish rhetoric will continue to put pressure on the precious metal in the near future. Moreover, if another study on a new strain of coronavirus shows that it is less dangerous than others, it will give the green light for a more rapid tapering of the stimulus. If that's the case, gold could spike to $1,720 as soon as this week, market strategist Jeffrey Halley predicts.

Friday's US consumer price data will also be an important price factor for the current seven-day period and will be closely monitored by investors.

However, the Fed's monetary policy meeting on December 14-15 is even more expected in the short term. It should show how the US regulator intends to adjust its rate hike plan to the current inflation rate. Many experts believe that gold will fall in price after this meeting.

As for the longer-term outlook for the asset, most strategists remain optimistic. At the end of the year, one of the catalysts for growth could be higher physical demand for the metal.

"The latest trade data from India, China, Hong Kong and Switzerland underscores the strength of the physical market in October, and preliminary data suggests that India's demand remained strong in November. But India's local premium has softened in early December (despite easing prices), while China's premium has firmed," Cooper noted.

"The Lunar New Year falls on 1 February 2022, and China's demand typically picks up six weeks ahead of the new year during strong consumption years; this suggests a soft floor in early December," she added.

Standard Chartered expects gold to close the year at around $1,825, with the price jumping to $1,875 in the first quarter of next year.