Gold futures are trading more than 1% higher on Friday as the discovery of a new coronavirus variant drove investors into the safety of U.S. Treasurys, driving yields sharply lower. The drop in yields made the U.S. Dollar a less-attractive investment while driving up demand for dollar-denominated gold.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion. A weaker dollar tends to increase foreign demand for dollar-denominated gold.

Stock market investors also dumped riskier holdings and move their money into gold as a hedge against further weakness in the equity market.

At 14:32 GMT, February Comex gold futures are trading $1805.60, up $18.70 or +1.05%.

Despite Friday’s gains, gold was still headed for its worst week since mid-September, down 1.8% so far, pressured by increased expectations that the U.S. Federal Reserve could hasten interest rate rises.

Treasury Yields Sink Amid Concerns Around a New Covid Variant

Gold futures were primarily boosted by a drop in U.S. Treasury yields, amid concerns around a new variant of the coronavirus found in South Africa. The yield on the benchmark 10-year Treasury note dropped by more than 10 basis points to 1.538%. The yield on the 30-year Treasury bond fell 7 basis points to 1.9%.

Overnight, fears of a new COVID variant found in South Africa started to rise, seeing the U.K. suspend flights from six African countries. More than 30 mutations have been detected in the new variant, raising concern that it could possibly better evade the antibody created by vaccines and prior infections.

US Dollar Weakens as Investors Seek Shelter in Safety of Yen, Swiss Franc

News of a new coronavirus variant potentially resistant to current vaccines sent investors dashing for the safety of the Japanese Yen and Swiss Franc on Friday. This along with the possible unwinding of U.S. rate hike bets weighed on the dollar, making gold cheaper for holders of foreign currencies.

One of the main gainers was the Japanese Yen which bounced off five-year lows hit this week against the greenback, and jumped more than 1% to a high of 113.60. The currency was on track for its best day since March 2020.

Story continuesDaily Forecast

Gold will move higher over the near-term to the extent that investors believe that the news of this new variant would give the Federal Reserve reason to pause on its normalization of monetary policy.

Ahead of today’s session, gold investors were liquidating their positions on increased bets the Fed would speed up the tapering process, paving the road for a sooner-than-expected rate hike.

Gold prices will likely retreat or become rangebound until the Fed meets in mid-December to decide its next policy moves. Earlier in the week, Fed officials said they would discuss a faster tapering. Now it appears they will also have to discuss the possible impact of a new wave of COVID cases. This may be enough to hold gold prices in a range over the near-term.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire


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