Gold rebounded as the dollar erased gains and a U.S. manufacturing gauge fell short of economists’ expectations.

An index of the dollar gave up early gains after rising as much as 0.3 per cent, boosting bullion’s appeal as an alternative asset. The Institute for Supply Management’s measure of December factory activity fell to the lowest level since January 2021, according to data released Tuesday.

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Gold got off to a bumpy start for 2022, posting its biggest drop in six weeks on the first trading day of the year amid surging Treasury yields. While bullion dropped below its 50-day moving average on Monday, uncertainty over the virus may signal continued accommodation in monetary policy, giving support to the metal, said Bart Melek, global head of commodity strategy at TD Securities.  

“The virus’ spread threatens both demand and supply-side forces, which could affect the U.S. growth outlook, suggesting that the Fed may want to remain cautious until the omicron wave this winter subsides,” Melek said in a note.

Traders are also monitoring the risks posed by the omicron virus variant and will focus this week on the releases of minutes from the Federal Reserve’s latest meeting and the U.S. payrolls data.

Spot gold rose 0.6 per cent to US$1,811.44 an ounce at 10:18 a.m. in New York, after dropping 1.5 per cent Monday, the most since Nov. 22. Silver, platinum and palladium also advanced.