Gold prices held steady near a three-week high as concerns over the rapid spread of the Omicron coronavirus boosted the metal’s safe-haven appeal. 

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The decline in benchmark 10-year U.S. Treasury yields also supported the yellow metal. It lowered the opportunity cost of owning the non-interest-rate bearing bullion (SPTL, GLD).

But the stronger dollar capped gold’s gains. The greenback got a boost in the possibility of COVID-19 restrictions during the Christmas and New Year holidays. It stayed close to the three-week high and made the bullion more expensive for investors using rival currencies.

Spot gold is currently trading at $1,798.72 per ounce as of 0820 GMT.

Meanwhile, the U.S. Federal Reserve policymakers talked about raising interest rates as soon as March. They cited the inflation rate that has gone way above target and the job market nearing its full potential. Even the previously dovish San Francisco Federal Reserve Bank President Mary C. Daly did not rule out a rate hike in March. She also supported two to three interest rate increases in 2022.

But Stephen Innes, the managing partner at SPI Asset Management, argued that there are still many reasons to buy gold. These include the historically low real rates, the Ukraine risk and the issues over the investment bill. He also suggested the Omicron uncertainty could turn the central bank more dovish in 2022.

U.S. health officials have called on Americans to wear masks and get booster shots to stem the raging Omicron. There is also a possibility of imposing COVID-19 restrictions in Europe during the holiday season. Omicron has been detected in 89 countries, and the number of cases is doubling in 1.5 to 3 days in areas with community transmission.

In physical trading, demand in major Asian hubs inched slightly higher. In India, jewelers who were waiting for correction started making purchases in anticipation of further price increases. Also, local dealers noted that the wedding season demand is far better than last year. Local gold futures traded around 48,700 rupees per 10 grams on Friday.

In China, jewelers could increase their purchases during the Christmas and New Year periods. The demand from retailers and wholesalers in Hong Kong was steady. In Singapore, the detection of Omicron cases got some retailers worried, but it is not expected to impact holiday gold buying.