Omicron and Uncertainty
The gold market is slightly lower in mid-day trade. Despite declines being seen in the Dow Jones Industrial Average of over 600 points, the yellow metal has been unable to generate any type of bid. There are several issues likely at work today putting a risk-off mentality into the markets, and the ongoing viral pandemic is without question a major factor in the day’s equity market declines.
Worries over major global economic shutdowns are likely playing a role in today’s major stock sell-off. The Omicron variant is wreaking havoc right now in certain parts of the world, and with the Christmas Holiday just around the corner, it is even more likely that a major spread could be seen. Such a spread could force governments to close businesses and services while putting a massive dent into global economic activity. These worries are causing some analysts to lower their economic forecasts for next year and could even weigh on the Federal Reserve and other central banks as they look to begin tightening monetary policies. The Covid-19 pandemic is simply raging in some parts of Europe right now, causing fresh business closures and travel restrictions. The Omicron variant is also a major problem and is currently very active in some parts of the U.S. The holidays may only cause further spread of the virus and the weeks following the holidays could get quite nasty as the effects are seen.
In other market news, the Biden Administration’s Build Back Better program may now be dead in the water. The plan’s blockage is also causing analysts to dial back their forecasts for 2022 and is being viewed as a major loss for the President. The U.S. Government isn;t the only government in the news today. China recently lowered its one-year loan prime rate, although the cut is having little impact on markets thus far. With another property developer potentially in big trouble, China may become a greater source of market anxiety than relief in the months ahead.
Crude oil took a major blow today, declining by 6% in early action as worries over the viral pandemic resurfaced in a major way. With oil now trading well below the $70 per barrel level, it could potentially alleviate some of the recent concerns over inflation and may take away from gold’s attractiveness as an inflationary hedge.
Despite the several bearish issues being seen today, it is important for investors to stay focused on the bigger picture. This week is a holiday-shortened trading week and as such may exhibit heightened volatility and selling. Lower trading volumes can exacerbate these effects and more volatility may be seen before traders call it a year.
The gold bulls have their work cut out for then in the near-term. While the market has not strayed far from the $1800 level thus far, it has also been unable to post a meaningful close above this key level which may be necessary to attract further buying interest. The bears too have been unable to extend gold’s recent weakness, and the $1750 level is likely the next primary target.