Mild Omicron and an Aggressive Fed May Hurt Gold

Could a dose of mild omicron plus aggressive action by the Federal Reserve sicken gold? This week’s sell-off in Treasuries may be more of a tizzy than a tantrum. But the recent rise in real interest-rate indicators, even if from subzero levels, spells trouble for gold bulls. After all, we’ve been here before.

Gold likes abnormality — such as abnormally lax monetary policy and its associated narratives of hyperinflation, economic chaos and everyone eating cold beans from a can. Conversely, signs of normalization tend not to go down too well. Hence, 2013’s initial taper tantrum and, at the end of 2016, the bump in the federal funds target rate above half a percentage point sparked sell-offs. Yet Covid-19’s sudden intervention at the end of a decade of ultra-easy monetary policy upended things again. Last summer, gold briefly shot above $2,000 an ounce, an all-time high.