FX.co ★ Fed's hawkish comments resulted in gold's decline

Omicron continues to set records, rapidly spreading across the planet. Against this background, investors are looking for protection from gold. The value of the precious metal sharply increased on Wednesday.

Yesterday, the yellow asset continued its upward movement and rose for the second session in a row. Compared to its growth of 0.8% gold surged by 0.6% during the middle of the week. The increase in monetary terms was $ 10.50, and the final price was $ 1,825.10.

The rise in quotes was facilitated by the decline in key US stock indices and the weakening of the US dollar. So, during trading, the NASDAQ Composite indicator plummeted by more than 1%, and the US dollar fell by 0.4% against its main competitors.

The increase in cases with the new strain of COVID-19 exerted pressure on the indicators. On the other hand, analyst Lukman Otunuga notes that the alarming coronavirus statistics accelerated the flight of investors to a safe place – to the gold market.

Amid increased coronavirus risk, the precious metal showed impressive dynamics yesterday, but the celebration did not last long.

Following the close of trading, the minutes of the Fed's meeting on monetary policy issues in December was published. Hawkish comments by officials of the US central bank brought down gold prices to a 2-week low.

Fed officials noted that a strong economic recovery and high inflation in the US may require an earlier and faster-than-expected rate hike.

According to the updated data, the US regulator expects real GDP to increase by 4% over the next 12 months. The PCE inflation forecast was raised from 2.2% to 2.6% in 2022.

At the same time, the updated dot chart showed that amid record inflation, Fed officials intend to raise interest rates by three-quarters of a point this year.

According to analyst Brien Lundin, any hint that the first rate increase will happen earlier is actually not bearish, but bullish for gold.

The expert draws attention to the fact that the precious metal often rises when the Fed rates increase. Therefore, the initial rate hike in December 2015 ended a long bearish trend in the gold market. After that, the asset showed a confident positive trend for several months.

Now, investors are waiting for the Fed to comment on Omicron's impact on the economy. This could happen as early as next week, as Jerome Powell is due to address the US Senate Banking Committee in a meeting on his re-nomination as head of the central bank.

If the Fed chairman's excitement over a new strain of coronavirus turns out to be high, the price of the precious metal will soar. Otherwise, we are waiting for a further drop in quotes.

However, gold's movement in the short term may be affected by statistics from the US labor market. The US employment report will be published tomorrow. According to economists' forecasts, the number of new jobs in the US in December will amount to 422 thousand. This is almost 2 times more than in November. If the expectations are met, the yellow asset will most likely continue to decline.