Gold Price Analysis: XAU/USD subdued near 50DMA at $1790 as more info on Omicron, Fedspeak and US data awaited

• Spot gold is stable on Monday close to its 50DMA near $1790.
• Gold traders await further information on Omicron, as well as Fed speak and US data this week.

Spot gold (XAU/USD) prices continue to stabilise close to the 50-day moving average, which currently resides just above $1790 and are broadly flat on the day, despite a modest pick up in the US dollar and US real yields. The pair has seen choppy trade since last Friday, in tandem with a pick-up in cross-asset volatility given worries about the newly discovered Covid-19 variant (Omicron) in South Africa. It swung as high as the $1815.00s last Friday as the US dollar and US yields dived as Omicron fears saw markets pull back on hawkish Fed bets, but then lost momentum and quickly pulled back under $1800 again. Shortly after the reopening of trade on Monday, it slid as low as $1770, but has since recovered.

Recent trade is indicative that market participants are in two minds about whether gold is an appropriate hedge against Omicron risk. Firstly, if the variant does prove a big problem to the global economic recovery, that likely means central banks remain more dovish than they otherwise would, which would be good for gold. Moreover, is global travel and lockdown restrictions to impact supply chains, inflationary pressures could remain at elevated levels for longer, increasing the precious metal’s appeal as an inflation hedge. But there is a lot of uncertainty about how bad this new variant actually is going to be, with initial reports from South African doctors suggesting the variant is associated with milder symptoms than other Covid-19 variants.

Markets need more clarity on Omicron; its ability to evade vaccine-induced immunity, its severity, its transmissibility etc. The picture should be clearer in a few weeks. Otherwise, gold traders will be on notice for a barrage of Fed speak and US data this week to gauge how the Fed feels about recent pandemic developments and whether underlying US economic momentum remains strong. Atlanta Fed President Raphael Bostic over the weekend did say that Omicron was a risk, but also that he could support a faster QE taper and more than one rate hike in 2022. Perhaps other Fed members will this week also play down Omicron risks. That might suggest the recent pullback in hawkish Fed bets may have been an over-reaction. That could mean higher short-end and real yields, which would be bad for gold.