Gold seen as safe haven as new Covid-19 variant scares markets

Bengaluru — Gold gained on Friday, as concerns over the spread of a newly identified coronavirus variant boosted the metal's safe-haven appeal, although bullion was set for a weekly drop on bets of US Federal Reserve turning more hawkish.

Spot gold rose 0.6% to $1,798.20/oz by 6.21am GMT. US gold futures advanced 0.8% to $1,798.30/oz.

The variant spreading in SA may evade immune responses and has prompted Britain and a growing number of other countries to hurriedly introduce travel restrictions on the African nation.

Further aiding gold’s climb, the dollar index eased 0.2% from a 16-month peak scaled earlier this week, while US benchmark 10-year treasury yields also weakened.

A weaker dollar reduces gold’s cost to buyers holding other currencies.

But the metal was heading for its worst week since August 6 on increased expectations that the Fed could taper its asset purchases and raise interest rates at a faster pace.

“A rate hike cycle is generally negative for gold, but we have to keep an eye on this new Covid-19 variant — if it spreads to the US, that could weaken growth and I can’t see the Fed hiking rates in that environment,” said Stephen Innes, managing partner at SPI Asset Management.

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of non-interest bearing gold.

Michael Langford, director at corporate advisory AirGuide, expects gold to decline further on higher chances of the Fed's sticking to its tapering timeline.

“The Fed is unlikely to alter its taper timeline as monetary policies are closely intertwined with the government’s public sentiment that any change would be negative for their next election prospects, limiting gold's decline.”

Spot silver was steady at $23.57/oz. Platinum fell 1.2% to $983.22/oz, while palladium rose 0.8% to $1,874.60/oz. 

Reuters