Gold marks yearly dip as central banks seek to wean economy off stimulus

[BENGALURU] Gold prices marked their biggest yearly decline since 2015, hemmed in by a resurgent dollar, as investors prepared to usher in a new year in which the money supply could be tightened even as the threat of the Omicron coronavirus variant lingers.

Spot gold was last up 0.7 per cent at US$1,827.51 per ounce by 6.46 pm GMT, after hitting a peak since Nov 22 at US$1,827.26 on Friday (Dec 31), helped by a retreat in the dollar and global equities.

US gold futures settled up 0.8 per cent at US$1,828.60.

Gold has eased about 4 per cent in 2021 as a recovering global economy pushed more investors toward riskier assets and curbed interest for safe-haven assets such as bullion.

Adding to this mix were indications that central banks would speed up reining in their massive pandemic-led money printing to jump-start the economy.

Although bullion is considered a hedge against the inflation that usually results from the widespread stimulus, interest rate hikes would translate into higher opportunity cost of holding gold, which bears no interest, and lift US Treasuries and the dollar.

"With US 10-year yields set to hit 2 per cent in 2022 along with transitory inflation, and of course higher interest rates, gold may be in for a downhill battle," said DailyFX analyst Warren Venketas.

The Fed was expected to implement three rate hikes in 2022.

While concerns about the effect of the Omicron variant could support gold, higher yields might tarnish its appeal, said Han Tan, chief market analyst at Exinity.

At the same time, "gold could see several catalysts for substantial gains next year, be it a Fed policy mistake, stubbornly elevated inflation, or even a spike in geopolitical tensions."

Spot silver rose 1.2 per cent to US$23.30 an ounce, down over 11 per cent this year, its worst performance in 7 years.

Platinum rose 0.4 per cent to US$965.10, with a yearly drop of more than 9 per cent. Palladium declined 3 per cent to US$1,906.27, registering its worst yearly dip since 2015.

REUTERS