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Metals Stocks: Gold prices rise back above $1,800, on track to post a gain for the week

Gold futures on Friday climbed back above the $1,800 mark, on track to post their highest settlement in nearly four weeks.

The precious metal’s rise above the key $1,800 level appears to be driven by “broad capital flows leaving risk markets…and moving into defensive havens,” such as gold, said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Also supporting prices is “uncertainty surrounding the potential impact of the omicron wave on the economy, exacerbated by tax-loss selling and bulls and bargain hunters “stepping to the sidelines,” he told MarketWatch.

There are also “increasing concerns about inflation,” which was enough to push the Federal Reserve and European Central Bank to accelerate tapering and the Bank of England to actually raise rates, he said.

The Bank of England surprised the market on Thursday with a 15 basis-point hike to its benchmark interest rate to 0.25%. The European Central Bank, meanwhile, left key interest rates unchanged and reiterated that its Pandemic Emergency Purchase Program will end in March as planned.

Both moves come after the latest projections for the Federal Reserve point to three interest rate increases in 2022 and a phase out of the central bank’s bond buying by March next year.

In Friday dealings, February gold GCG22, +0.38% GC00, +0.38%  was up $10.30, or 0.6%, to reach $1,808.50 an ounce, with most-active contract prices poised for a weekly rise of 1.3%. A settlement around the current level would be the highest since Nov. 22, FactSet data show.

March silver SIH22, +0.07% SI00, +0.07% was also up by 9 cents, or 0.4%, at $22.575 an ounce, on track for a 1.7% weekly gain.

Read The tale of two metals: why copper and silver have taken split paths this year

Bot gold and silver trade lower for the year so far after a volatile 2021 for prices.

In early 2021, “as newly developed vaccines were rolled out, investors’ optimism fueled a reduction in portfolio hedges,” Juan Carlos Artigas, global head of research at the World Gold Council, told MarketWatch. “This negatively impacted gold’s performance initially, but after hitting an annual low in March, gold rebounded.”

Performance for the rest of the year was a “tug of war between competing forces: uncertainty around new variants combined with increasing risks of persistently high inflation, and stronger consumer demand pushed gold forward, while rising interest rates and a stronger U.S. dollar created headwinds.”  

Looking ahead, Artigas said the World Gold Council believes gold will “experience similar dynamics in 2022.” 

Read: Why 2022 will be a ‘more challenging’ year for commodities such as oil and gold

“The likelihood of high inflation is likely to linger due to knockoff effects from COVID-induced monetary and fiscal policies, supply-chain disruptions, and a tight labor market,” he said. Combined with high equity market valuations, new COVID variants, and a growing appetite for less liquid assets, that will all likely “result in more frequent market pullbacks and increased demand for gold as a portfolio hedge.”

Artigas warned, however, that “gold may also face challenges if interest rates rise quicker than currently anticipated,” but even if there is an uptick in interest rates, he expects rates to remain low from a historical perspective, leading to an increased “need for a high quality, liquid asset such as gold.”

In other Comex trading, March copper HGH22, -0.23% tacked on nearly 0.1% to $4.307 a pound, trading around 0.4% higher for the week, January platinum PLF22, +0.38% added 0.8% to $936.20 an ounce, with prices turning up by 0.1% for the week. March palladium PAH22, +3.78% traded at $1,782.50 an ounce, up 3.5% for the session and on track for a weekly rise of 1.7%.

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