Gold Digger: Bears are tearing into gold prices on potential US interest rate rise
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Gold is spending the first part of 2022 getting smacked around by bears on concerns that the US Federal Reserve will raise interest rates sooner than expected.
Kitco noted that minutes from the Reserve’s meeting on Wednesday suggest that inflationary concerns brought about by a “very tight” US job market and rising inflation that outweighs the economic risks brought about by the Omicron variant of COVID-19.
After rising to a high of US$1,833 per oz right after the New Year, gold prices have dived back below the US$1,800/oz mark to US$1,789.29/oz last night.
However, analysts flagged that the inflationary pressure might be overstated given the recent drop in the US ISM services index – though it still remains strong by historical standards.
“That said, we suspect it is still painting an overly optimistic picture of activity, especially given the potential hit from the surge in Omicron infections,” Capital Economics senior US economist Andrew Hunter said.
“The biggest concern is that the resulting wave of absenteeism will cause a significantly (albeit hopefully short-lived) hit to labour supply, reducing output in the manufacturing and services sectors alike.”
Metals Focus noted that while studies have shown that Omicron is indeed less likely to cause serious illness compared to other variants, its rapid spread has resulted in record infection rates that have already caused disruptions to many industries.
It added that there is a risk that sooner than expected rate hikes could derail economic momentum, particularly when supply side driven inflationary pressures and elevated energy costs have already affected consumer sentiment.
However, the precious metals research consultancy acknowledged that without any dramatic worsening of economic conditions, price gains in early 2022 should be modest, with gold being capped below its 2021 high.
It expects the investment case for gold to turn bearish in the second half of 2022 as the global economic recovery gains a stronger foothold and provides support for current high equity valuations.
Here’s how ASX-listed gold & silver stocks are performing:
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While our top three gainers were all up on no news, Amani Gold is currently carrying out 3,500m of diamond drilling to grow the 4.1Moz Kebigada gold deposit within its Giro project in the Democratic Republic of Congo.
The program, the first at the deposit since 2019, will be completed early this year.
Also up on no news is Celsius Resources which noted in mid-December that drilling at its MCB copper-gold project in the Philippines had intersected a thick 670m interval grading. 0.43% copper and 0.12 grams per tonne gold from just 19m down-hole.
This included shallow higher-grade intervals of 122.2m at 0.92% copper and 0.24g/t gold from 26.5m with a 13m zone grading 3.69% copper and 0.39g/t gold from 89m.