Futures & Commodities

Gold retreats as Fed's Powell strikes hawkish tone

Pure 1,000-gram gold bars produced by South Korea's LS-Nikko are stacked in a dealers room in Seoul on January 9, 2009.
KIM JAE-HWAN | AFP | Getty Images

Gold beat a hasty retreat on Tuesday as investors latched on to seemingly hawkish remarks from the U.S. Federal Reserve chair, erasing gains from an over 1% rally fueled by concerns over the Omicron coronavirus variant.

Spot gold fell 0.7% to $1,773.21 per ounce by 02:14 p.m. ET (1914 GMT). U.S. gold futures settled down 0.5% at $1,776.5.

Prices earlier rose as much as 1.3% earlier in the session after a warning from Moderna's CEO that COVID-19 vaccines were likely to be less effective against the new variant.

In a testimony before the U.S. Senate Banking Committee, Fed Chair Jerome Powell said the Fed likely will discuss speeding up its taper of large-scale bond purchases at its next meeting.

Powell's comments drove a slight rebound in the dollar, which has steadied since then.

"Everyone got a little surprise as Powell moved closer toward the hawkish side," said Edward Moya, senior market analyst at brokerage OANDA, adding the Fed would likely implement rate hikes at a more rapid pace.

Gold is used to hedge against inflation, but interest rate hikes raise the opportunity cost of holding gold.

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But longer term, gold will be supported by worries over the virus variant, Moya added.

Gold's fall came alongside a tumble in Wall Street after Powell's comments hinting at a faster shift to tightening policy hurt risk sentiment already weighed down by concerns over Omicron.

Elsewhere, spot silver fell 0.1% to $22.86 per ounce, platinum dropped 2.6% to $938.50 and palladium slumped 3.5% to $1,732.50.

Looking ahead to 2022, increased investment in solar panels should boost silver, BofA Global Research said in a note.

"Platinum is the rebound trade on a normalisation of chip shortages in the auto industry; substitution from palladium should also help."