28.12.202109:40 Forex Analysis & Reviews: Traders focus on risky assets, causing gold to fall

At the beginning of the week, the coronavirus panic subsided. Traders turned their attention back to risky assets. As a result, gold suffered.

The S&P 500 reached its 69th record close of the year on Monday. The jump came on the back of increased investor appetite for stocks in the technology and energy sectors.

Yesterday, other major US indicators also closed the session with gains. The stock market was buoyed despite the rapid spread of a new strain of coronavirus.

Investors are hopeful that, although highly contagious, Omicron will not have a significant impact on the global economy. Their optimism is boosted by recent comments from medical professionals.

Research shows that the disease caused by the new strain is not as serious as in earlier mutations of the virus, especially in people who have been vaccinated.

Fears over the omicron variant have also eased amid statements by UK and US officials. The UK decided not to impose more stringent restrictions until the end of the year, despite an increase in the number of new cases. Meanwhile, the US reduced the recommended isolation time for patients with COVID-19 from 10 days to 5 days.

Increased demand for risky financial instruments has negatively affected the value of safe-haven assets, including gold. Futures for February fell 0.2%, or $2.90, on Monday. They settled at $1,808.80 on the New York COMEX.

A strong dollar also prevented gold from breaking $1,810 resistance. Yesterday the greenback index jumped by 0.1%. Thus, the asset broke its 2-day rally, which was provoked by intensified coronavirus risks.

Notably, bullion gained 0.4% in the last week, which was shortened due to the Christmas celebrations, to its highest level since November 19.

However, gold is now on track for its first annual loss in 3 years. FactSet has tentatively estimated that it will fall by 4.6% at the end of 2021, while the dollar will rise by around 7% over that period.

The strengthening of the US currency has put strong downward pressure on the main precious metal over the past few months. A more hawkish attitude from the US Federal Reserve contributed to the dollar's rise.

Just before the end of the year, the US central bank announced its intention to raise interest rates at least 3 times in 2022. Despite this, many experts believe that with rising inflationary pressures and record levels of government debt, real rates will still remain negative. This should provide support for gold.

Credit Suisse Swiss bank analyst Fahad Tariq believes the precious metal could see further bullish momentum in the new year. According to him, Credit Suisse looks for gold prices to average around $1,850 an ounce.

However, the analyst stressed that in the long term, when the other major central banks also take a more aggressive course, gold prices will fall to $1,600 and hover around $1,400 in 2023.