Risk assets are peering from behind the risk-off curtain that blanketed markets in recent sessions. Market participants are given some respite from Omicron fears, hoping that the global economy could still take in stride Omicron’s eventual impact. Asian and European equities are a sea of green, while US stock futures point to gains at the New York open.

The S&P 500 will be attempting to end a 3-day losing streak, with buy-the-dip agents triggered into action once more as the blue-chip index neared its 100-day simple moving average (SMA). This key technical indicator had earlier this month already provided support for the benchmark index for US stocks before sending it onto a fresh record high. Bulls will be hoping for a recurrence before the curtains are brought down on 2021.

Still, it’s worth noting that the thinner liquidity amid this year-end period could be exaggerating price moves.

Hence, I won’t be reading too much into the market action until there’s more clarity from a fundamental perspective, be it on Omicron’s impact on the global economy, or the effectiveness of the Fed’s response to sticky inflation.

Gold prices hemmed in by uncertainties over precious metal’s trajectory

Despite taking advantage of the moderating US dollar today, spot gold remains supressed below the psychologically-important $1800 level as well as its 200-day SMA, and is on course for its first annual decline in three years. Even after posting higher lows since August, gold bulls have been unable to capitalise on that rising support level to push prices onto higher highs.

This triangle that’s forming could force an eventual breakout, though its direction and the fundamental catalyst remains uncertain.

For bullion bulls, they’ll be hoping that real yields on US Treasuries would remain mired in negative territory, which would support gold’s appeal, considering its traditional role as an inflation hedge.

On the other hand, market participants are aware that nominal yields on US Treasuries could yet climb higher if bond markets share the conviction that the Fed’s pencilled-in rate hikes in 2022 would actually produce the desired result of dampening inflationary pressures. More importantly, Treasury yields could spike higher if the bond markets think the risks of a major policy mistake by the Fed are subsiding. Such a climb in Treasury yields could then erode the appeal of gold, as risk-on sentiment takes over, leaving safe haven assets like gold in the dust.

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