Gold held the previous day’s loss as bond yields climbed on speculation that the Federal Reserve will be more aggressive in tightening monetary policy to contain decades-high inflation. 

A March rate hike is almost a done deal and will be the first of many increases this year, according to Bloomberg Economics. While a quarter-point increase is still the most likely scenario, swap markets are now pricing in more than 25 basis points of tightening by the end of March. The yield on 10-year Treasuries spiked to the highest since January 2020, weighing on demand for non-interest bearing bullion.

On the virus, a study in South Africa indicated a strong wave of coronavirus infections driven by the omicron variant could speed the end of pandemic disruptions, as it seems to cause less severe illness and shields against the delta strain. Still, the World Health Organization warned that comprehensive strategies are still needed to reduce transmission and serious disease.

Gold is holding above $1,800 an ounce after dropping for the first time in three years in 2021 as central banks globally started dialing back on pandemic-era stimulus. Still, bullion’s traditional role as an inflation hedge and the uncertainty over omicron’s impact is supporting demand for the haven asset. 

“Gold prices are clearly hanging in there given that Treasury yields have skyrocketed this month,” said Edward Moya, a senior market analyst at Oanda Corp. “Wall Street is pricing in a much more aggressive Fed tightening strategy over these next several months as inflation runs wild. Gold is in for a choppy period, but the medium-term outlook still remains bullish if prices can hover around the $1,800 level.”

Spot gold was flat at $1,813.28 an ounce by 8:51 a.m. in Singapore, after dropping 0.3% Tuesday. The Bloomberg Dollar Spot Index edged lower after adding 0.4% in the previous session. Silver, platinum and palladium retreated. 

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