Gold exchange traded funds are struggling as traders weigh the impact of surging COVID-19 Omicron infections and the Federal Reserve’s monetary policy outlook in its fight against inflation.
On Monday, the iShares Silver Trust (SLV) was down 0.4%, the Sprott Physical Silver Trust (PSLV) fell 0.8%, the SPDR Gold Shares (NYSEArca: GLD) was 0.3% lower, and the Sprott Physical Gold Trust (PHYS) dropped 0.7%. Meanwhile, Comex gold futures were hovering around $1,791.2 per ounce and Comex silver futures were at $22.3 per ounce.
“Gold had a nice little bit of a rally and now we’re entering that holiday period where there’s no longer full participation from traders and you’re probably going to see reduced appetite for risk doing little to help gold,” Ed Moya, senior market analyst at brokerage OANDA, told Reuters.
Moya warned that oscillations could persist through the end of the year before an eventual consolidation above the key $1,800 level in January or so amid Omicron headlines.
While gold bullion is considered a hedge against higher inflation and market uncertainties, the eventual interest rate hikes would raise the opportunity cost of holding non-yielding assets like precious metals. Some, though, are hoping that Omicron-fueled uncertainty could contribute to a more dovish central bank outlook for 2022, which could support gold.
“We could still see modest upside for precious metals as the bearish tilted positioning slate suggests the metal may be more responsive to any doubts that begin to arise surrounding the Fed’s ability to deliver on their hawkish stance,” TD Securities writes in a note.
However, others warn that gold may be losing its edge as a go-to inflation hedge.
“This year, you’ve seen the inflation hedge really being in the [real estate investment trust] and real estate … segment of the market as well as stocks in general,” Laffer Tengler Investments’ Nancy Tengler told CNBC.
“If the dollar continues to weaken, gold should get a move, but a number of the other metals may actually be better places to play because there’s a narrative behind those in terms of planetary decarbonization [and] green energy,” Tengler added.
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