Gold price falls sharply from a three-week high in the wake of the risk-on environment.
Bets for slower Fed rate cuts also drive flows away from the non-yielding yellow metal.
Retreating US bond yields prompt USD profit-taking and could help limit further losses.
Gold price (XAU/USD) retreats after touching a nearly three-week high, around the $2,721-2,722 region during the Asian session on Monday and for now, seems to have snapped a five-day winning streak. US President-elect Donald Trump nominates Scott Bessent as Treasury Secretary and clears a major point of uncertainty for markets.
Adding to this, reports that Israel was close to reaching a ceasefire with the military group Hezbollah in Lebanon boosted investors' confidence. This is evident from the upbeat market mood and drags the safe-haven precious metal back closer to mid-$2,600s.
Moreover, expectations that Trump's proposed policies could reignite inflation and limit the scope for the Federal Reserve (Fed) to cut interest rates further turn out to be another factor undermining the non-yielding Gold price. Meanwhile, Bessent has been vocal about the need to control the deficit, and his nomination offers some respite to bond investors. This leads to a sharp fall in the US Treasury bond yields, which prompts some US Dollar (USD) profit-taking following the post-US election bullish run to the highest level since November 2022 and helps limit any further downside for the XAU/USD.
Gold price comes under heavy selling pressure on the back of the upbeat market mood
The risk-on mood fails to assist the Gold price to capitalize on last week's strong gains and leads to an intraday turnaround from a three-week high on Monday.
Scott Bessent's nomination as US Treasury Secretary and de-escalation in the long-running Middle East conflict boosts investors' confidence at the start of a new week.
Media reports suggest that Israel and the Lebanon-based Hezbollah militant group are on the cusp of a ceasefire deal, though an agreement is not fully formed yet.
Furthermore, the optimism over more business-friendly policies from the new Trump administration remains supportive of a positive tone around the equity markets.
S&P Global's Composite US PMI rose to 55.3 in November – the highest level since April 2022 – and suggested that growth probably accelerated in the fourth quarter.
The recent hawkish remarks from several Federal Reserve policymakers and potential inflation surprises could support an on-hold interest rate decision in December.
The CME Group's FedWatch Tool indicates that traders are currently pricing in just over a 55% probability that the Fed will cut interest rates by 25 basis points next month.
Investors this week will closely scrutinize the minutes from the November FOMC meeting, and the US Personal Consumption and Expenditure (PCE) Price Index data.
Bessent's conservative views on fiscal policy trigger a corrective decline in the US Treasury bond yields and prompt some US Dollar profit-taking from a two-year top.
Gold price needs to find acceptance below the $2,650 area for bears to seize control
From a technical perspective, the sharp intraday downfall drags the Gold price below the 23.6% Fibonacci retracement level of the recent strong recovery from a two-month low touched on November 14. The subsequent decline, however, stalls near the 100-period Simple Moving Average (SMA), around the $2,660-2,658 region. Meanwhile, oscillators on the daily chart have recovered from the negative zone and are holding in positive territory on the 4-hour chart. This makes it prudent for bearish traders to wait for some follow-through selling below the 100-period SMA and the 38.2% Fibo. level, around the $2,650 area, before placing fresh bets. The XAU/USD might then accelerate the fall towards the $2,630-2,629 region, or the 50% retracement level, en route to the $2,610-2,608 zone, or the 61.8% Fibo. level.
On the flip side, the $2,677-2,678 region (23.6% Fibo. level) now seems to act as an immediate hurdle ahead of the $2,700 mark. This is followed by the Asian session high, around the $2,721-2,722 area, above which the Gold price could accelerate the move up towards the $2,748-2,750 supply zone. The momentum could extend further towards retesting the all-time peak, around the $2,790 region touched in late October.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.
