Gold climbs on Omicron's widening spread, inflation worries

Gold is historically viewed as a hedge against inflation. PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - Gold jumped on Wednesday (Dec 1) as investors grappled with the widening spread of the new Omicron variant as well as inflation that's proving to be more persistent than previous predictions.

Spot gold advanced as much as 1.1 per cent to US$1,794.48 an ounce and was at US$1,788.22 by 6.59am in London. Prices fell 0.6 per cent on Tuesday.

The Bloomberg Dollar Spot Index was little changed after declining 0.4 per cent. Silver rose 0.5 per cent, palladium climbed 1.9 per cent and platinum gained 1.7 per cent.

Gold is historically viewed as a hedge against inflation. Higher inflation is feared to weaken corporate earnings, which in turn, would hurt stocks prices. In such a scenario, gold may gain as an alternative investment.

Moreover, if stocks correct on Omicron, investors may find safety in gold investing.

Researchers worldwide are racing to understand the full impact of the Omicron strain of Covid-19, first identified in South Africa and detected in countries from the UK to Brazil. It's prompted a raft of restrictions on inbound travelers in an effort to curtail its spread, and sparked concerns about whether it could evade the protection of vaccines and fuel new surges in infections.

"Gold has been relatively choppy lately as the Omicron issue has been tough to figure out at the moment, with so little data on it currently," said Nicholas Frappell, global general manager at Sydney-based ABC Bullion. The market is being "driven by sentiment not epidemiology," he said.

Investors are also assessing whether the Federal Reserve may step up efforts to curb inflation. Chair Jerome Powell retired the word "transitory" to describe stubbornly high price pressures and said officials should weigh removing pandemic support at a faster pace.

Bullion posted a marginal loss last month as investors weighed the prospects of the Fed dialing back on pandemic-era stimulus amid elevated consumer prices alongside uncertainty surrounding the omicron variant's impact on the global recovery. The US central bank is currently scheduled to complete its asset-purchase programme in mid-2022 under a plan announced at the start of November to slow buying by US$15 billion (S$20.5 billion) a month.

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