A Fed rate hike would increase the opportunity cost of holding gold, which pays no interest. Image Credit: Reuters

Gold prices steadied on Monday near a three-week high scaled last week, as fears over the rapidly spreading Omicron coronavirus variant buoyed the metal’s safe-haven appeal.

Spot gold was steady at $1,798.60 per ounce, as of 0807 GMT (12.07pm UAE time), while US gold futures fell 0.3 per cent to $1,800.10.

In the previous session, bullion prices hit their highest since November 26.

“There are a lot of reasons to own gold since real rates remain historically low even if the Fed raises interest rates.

The bond market remains non-reactive in terms of terminal rates,” said Stephen Innes, managing partner at SPI Asset Management.

Gold is often considered a hedge against higher inflation and geopolitical uncertainties, but a Fed rate hike would increase the opportunity cost of holding gold, which pays no interest.

Omicron uncertainty could lead to a more dovish central bank narrative in 2022, Innes said, adding that issues in Washington over the domestic investment bill and the Ukraine risk were also boosting the metal’s appeal.

Asian shares slid as surging Omicron cases triggered tighter restrictions in Europe.

Benchmark 10-year US Treasury yields dropped, lowering the opportunity cost of holding gold.

US Federal Reserve officials discussed raising rates as soon as March and starting to run down the central bank’s balance sheet in mid-2022. However, the remarks barely changed the bond market’s view that short-term interest rates could top out below the Fed’s estimated peak.

“Some inflation concerns have subsided since the Fed has taken action to rein it in, yet at the same time economic activity is likely to be impacted due to COVID-19 restrictions.

This could weigh on the treasury markets,” said Harshal Barot, a senior research consultant for South Asia at Metals Focus.

“Major economic events are behind us now, so until the end of the year and probably until early January, gold is likely to be range-bound.” Spot silver dipped 0.2 per cent to $22.31 per ounce, with platinum and palladium falling nearly 1 per cent to $921.48 and 4.6 per cent to $1,699.17, respectively.