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Metals Stocks

Nov. 30, 2021, 2:40 p.m. EST

Gold settles lower on Powell testimony amid concerns about omicron

By Myra P. Saefong and Barbara Kollmeyer

Gold prices ended lower Tuesday as comments from the head of the Federal Reserve suggested that the central bank might speed up tapering of its monthly asset purchases when it meets next month.

Federal Reserve Chairman Jerome Powell told lawmakers that it would be appropriate for policy makers to consider speeding up the wind-down of the central bank’s monthly asset purchases when they meet next month, prompting further declines in benchmark U.S. stock indexes .

Prices for the precious metal had been trading higher in the wake of some downbeat comments on the vaccine fight against the new COVID variant from Moderna’s CEO, which prompted a decline in U.S. stock market and raised the appeal of haven gold.

But the selloff in U.S. stocks intensified, likely prompting some investors to sell gold to cover margin calls.

The “trigger” for the move lower in gold was “Powell commenting that the timeline for tapering might be accelerated by a few months sooner,” Brien Lundin, editor of Gold Newsletter, told MarketWatch. The comments provided some support for the U.S. dollar, with the ICE U.S. Dollar index (IFUS:DXY) turning briefly higher, pressuring prices for gold, which is traded in the greenback. The Fed’s next policy meeting is Dec. 14-15.

On Tuesday, the most active February gold contract (NYM:GC00) fell $8.70, or 0.5%, to settle at $1,776.500 an ounce, after trading as high as $1,811.40 during the session. Based on the most-active contracts, prices lost 0.4% for the month of November, according to Dow Jones Market Data.

Lundin had expected the brief upward gold price reaction to the omicron variant to go the way of all geopolitical, or in this case geo-medical, drivers — “fade away and leave the price generally where it was beforehand.”

“The same goes for the market reactions to Powell’s reappointment and his indications today that the QE tapering schedule might be accelerated,” he said.

“The primary drivers for gold will be the simple fact that the Fed can’t get very far down the path toward policy normalization without either collapsing financial markets or running into the brick wall of debt service costs,” said Lundin. “Once investors realize this, likely when the Fed either has to turn back from tapering or institutes the first rate hike, gold will take off.”

U.S. benchmark stock indexes fell sharply, with the Dow Jones Industrial Average down nearly 500 points , and Treasury yields (XTUP:BX:TMUBMUSD10Y) also falling after Moderna’s (NAS:MRNA) CEO Stéphane Bancel predicted that current vaccines would struggle against the omicron variant of COVID that has rattled markets.

Speaking to the Financial Times in an interview that published Tuesday, Bancel said it would take months to mass produce a vaccine aimed at the new variant if needed. The fresh concern comes a day after stock markets recovered some of Friday’s lost ground.

In prepared testimony ahead of a Senate Banking Committee appearance on Tuesday with Treasury Secretary Janet Yellen, Powell “helped reduce 2022 rate expectations from three to two after he said the omicron virus posed risks to both sides of the central bank’s mandate for stable prices and maximum employment,” Steen Jakobsen, Saxo Bank’s chief executive officer, said in a note to clients. That helped provide earlier support for gold.

Gold futures also got a temporary boost after data revealed that the Chicago Business Barometer, also known as the Chicago PMI, fell to 61.8 in November from 68.4 in the prior month. It is the lowest reading since February.

The index of consumer confidence also dropped to 109.5 from 111.6 in October, the privately run Conference Board said Tuesday. It was the fourth decline in the past five months.

Back on Comex, the most-active March silver contract  (NYM:SI00)  fell 4 cents, or 0.2%, to $22.815 an ounce, with prices down about 4.7% for the month.

March copper  fell 1.4% to $4.28 a pound — posting a monthly loss of 2%. January platinum  fell 3.9% to $927.30 an ounce, down 9.2% for the month, and March palladium  declined by 4.7% to $1,705.50 an ounce, with prices down 13.9% from the end of last month.

Link to MarketWatch's Slice.