Spot Gold Rises as Dollar Erases Gains, U.S. Factory Gauge Slips

(Bloomberg) -- Gold rebounded as the dollar pared gains and a U.S. manufacturing gauge fell short of economists' expectations.

An index of the dollar gave up early gains of as much as 0.3%, boosting bullion's appeal as an alternative asset. The Institute for Supply Management's measure of December factory activity fell to the lowest level since January 2021, according to data released Tuesday. 

Gold got off to a bumpy start for 2022, posting its biggest drop in six weeks on the first trading day of the year amid surging Treasury yields. While bullion dropped below its 50-day moving average on Monday, uncertainty over the virus may signal continued accommodation in monetary policy, giving support to the metal, said Bart Melek, global head of commodity strategy at TD Securities.  

“The virus' spread threatens both demand and supply-side forces, which could affect the U.S. growth outlook, suggesting that the Fed may want to remain cautious until the omicron wave this winter subsides,” Melek said in a note.

Meanwhile, inflation pressures in U.S. manufacturing showed signs of easing at the end of 2021, even as producers are still grappling with high prices and long delivery times.

Institute for Supply Management gauges of supplier deliveries and prices paid for materials both fell in December to their lowest levels in more than a year, according to the report released Tuesday. That dragged down the group's headline measure of factory activity to the lowest since January 2021.

Signs of cooling cost pressures showed “there is less reason for the Fed to be aggressive with prices dropping and trending lower than market expected,” which is supportive for gold, TD Securities' Melek said.

Traders are also monitoring the risks posed by the omicron virus variant and will focus this week on the releases of minutes from the Federal Reserve's latest meeting and the U.S. payrolls data.

Blackstone's Byron Wien and Joe Zidle said they see gold prices rallying by 20% to a new record high this year.  

“Despite strong growth in the U.S., investors seek the perceived safety and inflation hedge of gold amidst rising prices and volatility,” the executives said Monday. “Gold reclaims its title as a haven for newly minted billionaires, even as cryptocurrencies continue to gain market share.”

Spot gold rose 0.8% to $1,814.95 an ounce at 3:56 p.m. in New York, after dropping 1.5% Monday. Bullion for February delivery gained 0.8% to settle at $1,814.60 on the Comex. Silver, platinum and palladium also advanced.

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