The gold price has bounced back in the past few days as investors assess the risks posed by the Omicron variant. The metal is also rising as the market reflects on the recent interest rate decision by the Federal Reserve. Gold is trading at $1,805, which is about 1.10% above the lowest level this week.

Omicron risks limited

The biggest concern of the financial market recently has been the fast-spreading Omicron variant. The variant, which was confirmed recently, has spread in most countries. And in the United States, it accounts for about 73% of all infections. 

However, preliminary studies show that the new variant is milder than Delta and the original one. On Wednesday, a report by the leading health institute in South Africa showed that patients were experiencing mild symptoms.

Another report on the studies in Scotland and South Africa had a similar conclusion. Patients with the variant required little or no hospitalization. The two reports cautioned that these numbers were preliminary and that the situation could change.

Indeed, recent data shows that while the number of confirmed Omicron cases has risen, the number of deaths has been relatively stable. The UK has only confirmed one Omicron death since the variant was first reported.

At the same time, the current vaccines and medications appear to be working. In a report on Wednesday, Novavax said that its vaccine was protecting against the variant. Pfizer and Moderna have said that their vaccines, too, were offering some protections.

These new developments have an impact on gold prices. For one, they mean that most countries will likely not implement lockdowns, which could slow their economic recovery. As a result, key central banks like the Federal Reserve and Bank of England (BOE) will maintain the hawkish tone they set last week.

US consumer confidence rising

The gold price also rose after the latest US consumer confidence data published on Wednesday. The data by the Conference Board showed that sentiment among Americans improved in December even as the Omicron variant spread and inflation rose. The figure rose from 111 in November to 115 in December. 

Consumer confidence is an important number because consumer spending is the biggest part of the American economy. As such, highly confident population leads to more spending. It also seems like consumers are not all that concerned about the Omicron variant.

Additional data published on Wednesday showed that the American consumer is in a good place. For example, existing-home sales jumped sharply in November even as prices rose.

On Thursday, the US is expected to publish strong economic numbers. It will publish the last new home sales, durable goods orders, and the personal consumer expenditure (PCE) data. The latter will have an impact on gold prices because it is the Fed’s favourite inflation gauge. 

Therefore, the conclusion that can be made is that the Fed will maintain its hawkish tone in 2022 because of the strong economic numbers and the lower risks posed by Omicron.

Gold price forecast

The daily chart shows that the gold price has risen in the past two straight days. Still, the metal remains in a tight range as investors embrace the new tone by the Federal Reserve. A closer look shows that it has formed a head and shoulders pattern, which is usually a bearish sign. It is also along the 25-day and 50-day moving averages. Therefore, I suspect that the gold price will have a bearish breakout in the near term.

The gold price daily chart showing the head and shoulders formation soon to be complete